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Department of the Treasury Instructions for Form 706 Internal Revenue Service (Rev. September 2021) For decedents dying after December 31, 2020 United States Estate (and Generation-Skipping Transfer) Tax Return

Section references are to the Internal Revenue Contents Page Contents Page Code unless otherwise noted. Specific Instructions ...... 5 Schedule PC—Protective Revisions of Form 706 Part 1—Decedent and Claim for Refund ...... 49 Executor ...... 5 Continuation Schedule ...... 51 For Decedents Dying Use Part 2—Tax Computation ...... 5 Index ...... 52 Revision of Part 3—Elections by the Checklist ...... 53 Form 706 Executor ...... 10 After and Before Dated Part 4—General Information ... 15 Future Developments December 31, January 1, July 1999 Part 5—Recapitulation ...... 17 1998 2001 Part 6—Portability of For the latest information about December 31, January 1, November Deceased Spousal developments related to Form 706 and 2000 2002 2001 Unused Exclusion its instructions, such as legislation December 31, January 1, August (DSUE) ...... 17 enacted after they were published, go to 2001 2003 2002 Schedule A—Real Estate ..... 19 IRS.gov/Form706. December 31, January 1, August Schedule A-1—Section 2002 2004 2003 2032A Valuation ...... 20 December 31, January 1, August Schedule B—Stocks and 2003 2005 2004 Bonds ...... 22 What's New December 31, January 1, August Schedule C—Mortgages, 2004 2006 2005 Notes, and Cash ...... 24 Various dollar amounts and limitations December 31, January 1, October Schedule D—Insurance on in Form 706 are indexed for inflation. 2005 2007 2006 the Decedent's Life ...... 25 For decedents dying in 2021, the December 31, January 1, September Schedule E—Jointly Owned following amounts are applicable. 2006 2008 2007 Property ...... 25 • The basic exclusion amount is December 31, January 1, August $11,700,000. 2007 2009 2008 Schedule F—Other Miscellaneous Property .... 26 December 31, January 1, September • The ceiling on special-use valuation 2008 2010 2009 Schedule G—Transfers is $1,190,000. December 31, January 1, July 2011 During Decedent's Life ..... 27 • The amount used in figuring the 2% 2009 2011 Schedule H—Powers of portion of estate tax payable in December 31, January 1, August Appointment ...... 29 installments is $1,590,000. 2010 2012 2011 Schedule I—Annuities ...... 30 • The basic credit amount is December 31, January 1, August Schedule J—Funeral $4,625,800. 2011 2013 2012 Expenses and Expenses December 31, January 1, August Incurred in Administering The IRS will publish amounts for future 2012 2017 2013 Property Subject to years in annual revenue procedures. December 31, January 1, August Claims ...... 32 2016 2018 2017 Schedule K—Debts of the December 31, January 1, November Decedent and Mortgages Reminders 2017 2019 2018 and Liens ...... 33 Schedule R-1 is now a separate December 31, August Schedule L—Net Losses form. Beginning in 2019, Schedule R-1 2018 2019 During Administration and Expenses Incurred in will no longer be part of Form 706; Administering Property instead, you will need to obtain a Contents Page Not Subject to Claims ...... 34 separate Schedule R-1 to complete and General Instructions ...... 1 Schedule M—Bequests, file with Form 706. Purpose of Form ...... 1 etc., to Surviving Spouse (Marital Deduction) ...... 35 Identifying exhibits. Copies of tax Which Estates Must File ...... 2 Schedule O—Charitable, returns filed with Form 706 must be Executor ...... 2 Public, and Similar Gifts identified as exhibits to the Form 706. When To File ...... 2 and Bequests ...... 38 Where To File ...... 2 Schedule P—Credit for General Instructions Paying the Tax ...... 3 Foreign Death Taxes ...... 39 Signature and Verification ...... 3 Schedule Q—Credit for Tax Purpose of Form Amending Form 706 ...... 3 on Prior Transfers ...... 40 Supplemental Documents ...... 3 Schedules R and R-1— The executor of a decedent's estate Generation-Skipping uses Form 706 to figure the estate tax Rounding Off to Whole Transfer Tax ...... 43 Dollars ...... 4 imposed by chapter 11 of the Internal Schedule U—Qualified Penalties ...... 4 Revenue Code. This tax is levied on the Conservation Easement entire taxable estate and not just on the Obtaining Forms and Exclusion ...... 47 Publications To File or share received by a particular Use ...... 4 beneficiary. Form 706 is also used to

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figure the generation-skipping transfer Note. Under the special rule of person in actual or constructive (GST) tax imposed by chapter 13 on Regulations section 20.2010-2(a)(7)(ii), possession of any property of the direct skips (transfers to skip persons of executors of estates who are not decedent is considered an executor and interests in property included in the required to file Form 706 under section must file a return. decedent's gross estate). 6018(a), but who are filing to elect portability of the DSUE amount to the Executors must provide surviving spouse, are not required to documentation proving their status. Which Estates Must File Documentation will vary but may include For decedents who died in 2021, Form report the value of certain property eligible for the marital deduction under documents such as a certified copy of 706 must be filed by the executor of the the will or a court order designating the estate of every U.S. citizen or resident: section 2056 or 2056A or the charitable deduction under section 2055. executor(s). A statement by the a. Whose gross estate, plus However, the value of those assets executor attesting to their status is adjusted taxable gifts and specific must be estimated and included in the insufficient. exemption, is more than total value of the gross estate. See the $11,700,000; or instructions for Part 5—Recapitulation, When To File b. Whose executor elects to transfer lines 10 and 23, later, for more You must file Form 706 to report estate the deceased spousal unused information. and/or GST tax within 9 months after the exclusion (DSUE) amount to the date of the decedent's death. If you are For more specific information, see surviving spouse, regardless of the unable to file Form 706 by the due date, the instructions for Schedules A through size of the decedent's gross estate. you may receive an extension of time to I. See the instructions for Part file. Use Form 4768, Application for 6—Portability of Deceased Spousal U.S. Citizens or Residents; Extension of Time To File a Return Unused Exclusion, later, and Nonresident Noncitizens and/or Pay U.S. Estate (and sections 2010(c)(4) and (c)(5). Generation-Skipping Transfer) Taxes, to File Form 706 for the estates of To determine whether you must file a apply for an automatic 6-month decedents who were either U.S. citizens extension of time to file. return for the estate under (a) above, or U.S. residents at the time of death. add: For estate tax purposes, a resident is Portability election. An executor can 1. The adjusted taxable gifts (as someone who had a domicile in the only elect to transfer the DSUE amount defined in section 2503) made by the United States at the time of death. A to the surviving spouse if the Form 706 decedent after December 31, 1976; person acquires a domicile by living in a is filed timely, that is, within 9 months of 2. The total specific exemption place for even a brief period of time, as the decedent's date of death or, if you allowed under section 2521 (as in effect long as the person had no intention of have received an extension of time to before its repeal by the Tax Reform Act moving from that place. file, before the 6-month extension period ends. of 1976) for gifts made by the decedent Decedents who were neither U.S. after September 8, 1976; and citizens nor U.S. residents at the time of Extension to elect portability. 3. The decedent's gross estate death file Form 706-NA, United States Executors who did not have a filing valued as of the date of death. Estate (and Generation-Skipping requirement under section 6018(a) but Transfer) Tax Return, Estate of failed to timely file Form 706 to make the Gross Estate nonresident not a citizen of the United portability election may be eligible for an The gross estate includes all property in States. extension under Rev. Proc. 2017-34, which the decedent had an interest Residents of U.S. Possessions 2017-26 I.R.B. 1282. Executors filing to (including real property outside the elect portability may now file Form 706 United States). It also includes: All references to citizens of the United on or before the second anniversary of • Certain transfers made during the States are subject to the provisions of the decedent’s death. sections 2208 and 2209, relating to decedent's life without an adequate and An executor wishing to elect decedents who were U.S. citizens and full consideration in money or money's portability under this extension must residents of a U.S. possession on the worth, state at the top of the Form 706 being date of death. If such a decedent • Annuities, filed that the return is “Filed Pursuant to became a U.S. citizen only because of • The includible portion of joint estates Rev. Proc. 2017-34 to Elect Portability his or her connection with a possession, with right of survivorship (see the under 2010(c)(5)(A).” For more then the decedent is considered a instructions for Schedule E), information on this extension, see Rev. nonresident not a citizen of the United • The includible portion of tenancies by Proc. 2017-34. the entirety (see the instructions for States for estate tax purposes, and you Schedule E), should file Form 706-NA. If such a Note. Any estate that is filing an estate • Certain life insurance proceeds (even decedent became a U.S. citizen wholly tax return only to elect portability and though payable to beneficiaries other independently of his or her connection did not file timely or within the extension than the estate) (see the instructions for with a possession, then the decedent is provided in Rev. Proc. 2017-34 may Schedule D), considered a U.S. citizen for estate tax seek relief under Regulations section • Property over which the decedent purposes, and you should file Form 706. 301.9100-3 to make the portability possessed a general power of election. appointment, Executor • Dower or curtesy (or statutory estate) The term “executor” includes the Where To File of the surviving spouse, and executor, personal representative, or File Form 706 at the following address. • Community property to the extent of administrator of the decedent's estate. If the decedent's interest as defined by none of these is appointed, qualified, applicable law. and acting in the United States, every

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Department of the Treasury does not apply to other methods of In addition to signing and completing Internal Revenue Service payment (such as electronic payments). the required information, the paid Kansas City, MO 64999 Please consider a method of payment preparer must give a copy of the other than a check if the amount of the completed return to the executor. If you’re using a private delivery payment is over $100 million. service (PDS), file at this address. Note. A paid preparer may sign original Paying electronically. Payment of the or amended returns by rubber stamp, tax due shown on Form 706 may be Internal Revenue Submission mechanical device, or computer submitted electronically through the Processing Center software program. Electronic Federal Tax Payment System 333 W. Pershing Road (EFTPS). EFTPS is a free service of the Kansas City, MO 64108 Amending Form 706 Department of the Treasury. If you find that you must change If you’re filing an amended Form 706, To be considered timely, payments something on a return that has already use the following address. made through EFTPS must be been filed, you should: completed no later than 8 p.m. Eastern • File another Form 706; Internal Revenue Service Center time the day before the due date. All • Enter “Supplemental Information” Attn: E&G, Stop 824G EFTPS payments must be scheduled in across the top of page 1 of the form; 7940 Kentucky Drive advance of the due date and, if and Florence, KY 41042-2915 necessary, may be changed or • Attach a copy of pages 1, 2, 3, and 4 canceled up to 2 business days before of the original Form 706 that has already If you’re using a PDS for your the scheduled payment date. been filed. amended Form 706, use this address. To get more information about EFTPS or to enroll, visit EFTPS.gov or File the amended Form 706 at the Internal Revenue Service Center call 800-555-4477. Additional following address. Attn: E&G, Stop 824G information about EFTPS is available in 7940 Kentucky Drive Pub. 966, Electronic Federal Tax Internal Revenue Service Center Florence, KY 41042-2915 Payment System: A Guide to Getting Attn: E&G, Stop 824G Started. 7940 Kentucky Drive Paying the Tax Florence, KY 41042-2915 The estate and GST taxes are due Signature and Verification If you’re using a PDS, file at this within 9 months of the date of the If there is more than one address. decedent's death. You may request an ! executor, all listed executors are extension of time for payment by filing CAUTION responsible for the return. Internal Revenue Service Center Form 4768. You may also elect under However, it is sufficient for only one of Attn: E&G, Stop 824G section 6166 to pay in installments or the co-executors to sign the return. 7940 Kentucky Drive under section 6163 to postpone the part Florence, KY 41042-2915 of the tax attributable to a reversionary All executors are responsible for the return as filed and are liable for or remainder interest. These elections If you have already been notified that are made by checking “Yes” on lines 3 penalties imposed for erroneous or false returns. the return has been selected for and 4 (respectively) of Part 3—Elections examination, you should provide the by the Executor and attaching the additional information directly to the required statements. If two or more persons are liable for filing the return, they should all join office conducting the examination. If the tax paid with the return is together in filing one complete return. different from the balance due as However, if they are unable to join in Supplemental Documents figured on the return, explain the making one complete return, each is difference in an attached statement. If Note. You must attach the death required to file a return disclosing all the certificate to the return. you have made prior payments to the information the person has about the If the decedent was a citizen or IRS, attach a statement to Form 706 estate, including the name of every resident of the United States and died including these facts. person holding an interest in the testate (leaving a valid will), attach a property and a full description of the Paying by check. Make the check certified copy of the will to the return. If property. If the appointed, qualified, and payable to “United States Treasury.” you cannot obtain a certified copy, acting executor is unable to make a Please write the decedent's name, attach a copy of the will and an complete return, then every person social security number (SSN), and explanation of why it is not certified. holding an interest in the property must, “Form 706” on the check to assist us in Other supplemental documents may be on notice from the IRS, make a return posting it to the proper account. required as explained later. Examples regarding that interest. No checks of $100 million or more include Form 712, Life Insurance accepted. The IRS cannot accept a The executor who files the return Statement; Form 709, United States Gift single check (including a cashier's must, in every case, sign the declaration (and Generation-Skipping Transfer) Tax check) for amounts of $100,000,000 on page 1 under penalties of perjury. Return; Form 706-CE, Certificate of ($100 million) or more. If you're sending Payment of Foreign Death Tax; trust $100 million or more by check, you'll Generally, anyone who is paid to and power of appointment instruments; need to spread the payments over 2 or prepare the return must sign the return and state certification of payment of more checks, with each check made out in the space provided and fill in the Paid death taxes. If you do not file these for an amount less than $100 million. Preparer Use Only area. See section documents with the return, the The $100 million or more amount limit 7701(a)(36)(B) for exceptions. processing of the return will be delayed.

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If the decedent was a U.S. citizen but understatement occurs if any property • Form 706-NA, United States Estate not a resident of the United States, you on the return is valued at 40% or less of (and Generation-Skipping Transfer) Tax must attach the following documents to the value determined to be correct. Return, Estate of nonresident not a the return. Penalties also apply to late filing, late citizen of the United States. 1. A copy of the inventory of payment, and underpayment of GST • Form 709, United States Gift (and property and the schedule of liabilities, taxes. Generation-Skipping Transfer) Tax Return. claims against the estate, and expenses Return preparer. Estate tax return of administration filed with the foreign • Form 712, Life Insurance Statement. preparers who prepare any return or • Form 2848, Power of Attorney and court of probate jurisdiction, certified by claim for refund which reflects an a proper official of the court. Declaration of Representative. understatement of tax liability due to an • Form 4768, Application for Extension 2. A copy of the return filed under unreasonable position are subject to a of Time To File a Return and/or Pay the foreign inheritance, estate, legacy, penalty equal to the greater of $1,000 or U.S. Estate (and Generation-Skipping succession tax, or other death tax act, 50% of the income earned (or to be Transfer) Taxes. certified by a proper official of the earned) for the preparation of each such • Form 4808, Computation of Credit for foreign tax department, if the estate is return. Estate tax return preparers who Gift Tax. subject to such a foreign tax. prepare a return or claim for refund • Form 8821, Tax Information 3. If the decedent died testate, a which reflects an understatement of tax Authorization. certified copy of the will. liability due to willful or reckless conduct • Form 8822, Change of Address. are subject to a penalty of $5,000 or • Form 8971, Information Regarding Rounding Off to Whole 75% of the income earned (or income to Beneficiaries Acquiring Property From a be earned), whichever is greater, for the Decedent. Dollars preparation of each such return. See You may round off cents to whole sections 6694(a) and 6694(b), the Additional Information. Pub. 559, dollars on the return and schedules. If related regulations, and Ann. 2009-15, Survivors, Executors, and you do round to whole dollars, you must 2009-11 I.R.B. 687, available at Administrators, may assist you in round all amounts. To round, drop IRS.gov/pub/irs-irbs/irb09-11.pdf, for learning about and preparing Form 706. amounts under 50 cents and increase more information. Closing letter procedure. Estate amounts from 50 to 99 cents to the next closing letters will not be issued unless dollar. For example, $1.39 becomes $1 Consistent basis reporting. Certain requested by the executor of the estate and $2.50 becomes $3. estates are required to report to the IRS and the recipient the estate tax value of or the designated power of attorney. To Penalties each asset included in the gross estate allow time for processing, please wait at within 30 days of the due date (including least 9 months after filing Form 706 to Late filing and late payment. Section extensions) of Form 706 or the date of request a closing letter. Instead of an 6651 provides for penalties for both late filing Form 706 if the return is filed late. estate tax closing letter, the executor of filing and for late payment unless there The basis of certain assets when sold or the estate may request an account is reasonable cause for the delay. The otherwise disposed of must be transcript, which reflects transactions law also provides for penalties for willful consistent with the basis (estate tax including the acceptance of Form 706 attempts to evade payment of tax. The value) of the asset when it was received and the completion of an examination. late filing penalty will not be imposed if by the beneficiary. To satisfy the Account transcripts are available online the taxpayer can show that the failure to consistent basis reporting requirements, to registered tax professionals using the file a timely return is due to reasonable the estate must file Form 8971, Transcript Delivery System (TDS) or to cause. Information Regarding Beneficiaries authorized representatives making Acquiring Property From a Decedent. requests using Form 4506-T. Specific Reasonable-cause determinations. See Form 8971 and its instructions for instructions are available for requesting If you receive a notice about penalties more information. online transcripts using the TDS or after you file Form 706, send an hardcopy transcripts using Form explanation and we will determine if you 4506-T. For questions about estate tax meet reasonable-cause criteria. Do not Obtaining Forms and closing letter requests, go to Frequently attach an explanation when you file Publications To File or Use Asked Questions on Estate Taxes, and Form 706. Explanations attached to the Internet. You can access the IRS refer to the questions related to closing return at the time of filing will not be website 24 hours a day, 7 days a week letters. considered. at IRS.gov to: Note. For information about the release Valuation understatement. Section • Download forms, instructions, and of nonresident U.S. citizen decedents' 6662 provides a 20% penalty for the publications; assets using transfer certificates under underpayment of estate tax that • Order IRS products online; Regulations section 20.6325-1, go to exceeds $5,000 when the • Research your tax questions online; Transfer Certificate Filing Requirements underpayment is attributable to • Search publications online by topic or for the Estates of Nonresident Citizens valuation understatements. A valuation keyword; and of the United States or write to: understatement occurs when the value • Sign up to receive local and national of property reported on Form 706 is tax news by email. 65% or less of the actual value of the Internal Revenue Service Center property. Other forms that may be required. Attn: E&G, Stop 824G Form SS-5, Application for a Social 7940 Kentucky Drive This penalty increases to 40% if • Security Card. Florence, KY 41042-2915 there is a gross valuation Form 706-CE, Certificate of Payment understatement. A gross valuation • of Foreign Death Tax.

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Specific Instructions Table A—Unified Rate Schedule Column A Column B Column C Column D You must file the first four pages of Taxable amount over Taxable amount not Tax on amount in Rate of tax on excess Form 706 and all required schedules. over column A over amount in File Schedules A through I, as column A . . . . appropriate, to support the entries in $0 $10,000 $0 18% items 1 through 9 of Part 10,000 20,000 1,800 20% 5—Recapitulation. 20,000 40,000 3,800 22% Make sure to complete the 40,000 60,000 8,200 24% ! required pages and schedules 60,000 80,000 13,000 26% CAUTION in their entirety. Returns filed 80,000 100,000 18,200 28% without entries in each field will not be 100,000 150,000 23,800 30% processed. 150,000 250,000 38,800 32% 250,000 500,000 70,800 34% 500,000 750,000 155,800 37% IF . . . THEN . . . 750,000 1,000,000 248,300 39% you enter zero on any you need not file the 1,000,000 – – – – 345,800 40% item of the schedule (except for Recapitulation Schedule F) referred to on that item. • Enter the total of all attachments, Line 6d. Multiple Executors Continuation Schedules, etc., at the you are estimating you must report the Check here if there is more than one bottom of the printed schedule, but do the value of one or asset on the executor. On an attached statement, more assets pursuant appropriate schedule, not carry the totals forward from one provide the name, address, telephone to the special rule of but you are not required schedule to the next. number, and SSN of any executor other Regulations section to enter a value for the • Enter the total, or totals, for each than the one named on line 6a. 20.2010-2(a)(7)(ii) asset. Include the schedule on page 3, Part estimated value of the 5—Recapitulation. Line 11. Special Rule asset in the totals • Do not complete the “Alternate If the estate is estimating the value of entered on lines 10 and valuation date” or “Alternate value” assets under the special rule of 23 of Part 5— columns of any schedule unless you Recapitulation. Regulations section 20.2010-2(a)(7)(ii), elected alternate valuation on line 1 of check here and see the instructions for you claim an complete and attach Part 3—Elections by the Executor. lines 10 and 23 of Part exclusion on item 12 Schedule U. • When you complete the return, staple 5—Recapitulation. all the required pages together in the you claim any complete and attach proper order. deductions on items the appropriate Part 2—Tax Computation 14 through 22 of the schedules to support Recapitulation the claimed deductions. In general, the estate tax is figured by Part 1—Decedent and applying the unified rates shown in you claim credits for complete and attach Executor Table A to the total of transfers both foreign death taxes or Schedule P or Q. during life and at death, and then tax on prior transfers Line 2 subtracting the gift taxes, as refigured Enter the SSN assigned specifically to based on the date of death rates. See there is not enough attach a Continuation the decedent. You cannot use the SSN Worksheet TG, the Line 4 Worksheet, space on a schedule Schedule (or additional assigned to the decedent's spouse. If and the Line 7 Worksheet. to list all the items sheets of the same the decedent did not have an SSN, the size) to the back of the executor should obtain one for the Note. You must complete Part 2—Tax schedule (see the Computation. Continuation Schedule decedent by filing Form SS-5 with a at the end of Form local Social Security Administration Line 1 706); photocopy the (SSA) office. If you elected alternate valuation on blank schedule before completing it, if you will Line 6a. Name of Executor line 1 of Part 3—Elections by the need more than one If there is more than one executor, enter Executor, enter the amount you entered copy. the name of the executor to be in the “Alternate value” column of item contacted by the IRS and see line 6d. 13 of Part 5—Recapitulation. Otherwise, enter the amount from the “Value at date Line 6b. Executor's Address of death” column. Also consider the following. Use Form 8822 to report a change of Form 706 has 29 numbered pages. Line 3b. State Death Tax • the executor's address. • Number the items you list on each Deduction schedule, beginning with the number “1” Line 6c. Executor's Social each time, or using the numbering Security Number You may take a deduction on line 3b convention as indicated on the schedule Only one executor should complete this for estate, inheritance, legacy, or (for example, Schedule M). line. If there is more than one executor, succession taxes paid on any property • Total the items listed on the schedule see line 6d. included in the gross estate as the result and its attachments, Continuation of the decedent's death to any state or Schedules, etc. the District of Columbia.

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You may claim an anticipated Send the following evidence to the Line 4 Worksheet and the Line 7 amount of deduction and figure the IRS. Worksheet. federal estate tax on the return before 1. Certificate of the proper officer of the state death taxes have been paid. the taxing state, or the District of You must have all of the decedent's However, the deduction cannot be Columbia, showing the following. gift tax returns (Forms 709) before finally allowed unless you pay the state completing Worksheet TG—Taxable death taxes and claim the deduction a. Total amount of tax imposed Gifts Reconciliation. The amounts within 4 years after the return is filed, or (before adding interest and penalties needed for Worksheet TG can usually later (see section 2058(b)) if: and before allowing discount). be found on the filed returns that were • A petition is filed with the Tax Court of b. Amount of discount allowed. subject to tax. However, if any of the the United States, c. Amount of penalties and interest returns were audited by the IRS, use the • You have an extension of time to pay, imposed or charged. amounts that were finally determined as a result of the audits. or d. Total amount actually paid in • You file a claim for refund or credit of cash. an overpayment which extends the In addition, you must make a deadline for claiming the deduction. e. Date of payment. reasonable effort to discover any gifts in 2. Any additional proof the IRS excess of the annual exclusion made by Note. The deduction is not subject to specifically requests. the decedent (or on behalf of the dollar limits. decedent under a power of attorney) for File the evidence requested above If you make a section 6166 election which no Forms 709 were filed. Include with the return, if possible. Otherwise, to pay the federal estate tax in the value of such gifts in column b of send it as soon as possible after the installments and make a similar election Worksheet TG. The annual exclusion return is filed. to pay the state death tax in per donee is as follows. installments, see section 2058(b) for Line 6 exceptions and periods of limitation. Annual Exclusion To figure the tentative tax on the amount Period If you transfer property other than on line 5, use Table A—Unified Rate Amount Per Donee cash to the state in payment of state Schedule and put the result on this line. 1977 through 1981 $3,000 inheritance taxes, the amount you may 1981 through 2001 $10,000 claim as a deduction is the lesser of the Lines 4 and 7 state inheritance tax liability discharged Three worksheets are provided to help 2002 through 2005 $11,000 or the fair market value (FMV) of the you figure the entries for these lines. 2006 through 2008 $12,000 property on the date of the transfer. For Worksheet TG—Taxable Gifts 2009 through 2012 $13,000 more information on the application of Reconciliation allows you to reconcile such transfers, see the principles the decedent's lifetime taxable gifts to 2013 through 2017 $14,000 discussed in Rev. Rul. 86-117, 1986-2 figure totals that will be used for the 2018 through 2021 $15,000 C.B. 157, prior to the repeal of section 2011.

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Taxable Gift Amount Table Row (b). Enter all taxable gifts made in the specified year. Enter all pre-1977 Column A Column B Column C Column D gifts in the pre-1977 column. Row (c). Enter the amount from Row Amount in Row (p), Line Amount in Row (p), Line Property Value on Rate (Divisor) on (d) of the previous column. 7 Worksheet over... 7 Worksheet not over... Amount in Column A Excess of Amount in Row (d). Enter the sum of Row (b) and Column A Row (c) from the current column. 0 1,800 0 18% Row (e). Enter the amount from Row (f) 1,800 3,800 10,000 20% of the previous column. Row (f). Enter the tax based on the 3,800 8,200 20,000 22% amount in Row (d) of the current column 8,200 13,000 40,000 24% using Table A—Unified Rate Schedule. 13,000 18,200 60,000 26% Row (g). Subtract the amount in Row (e) from the amount in Row (f) for the 18,200 23,800 80,000 28% current column. 23,800 38,800 100,000 30% Row (h). Complete this row only if a 38,800 70,800 150,000 32% DSUE amount was received from predeceased spouse(s) and was 70,800 155,800 250,000 34% applied to lifetime gifts or if a Restored 155,800 248,300 500,000 37% Exclusion Amount on taxable gifts to a 248,300 345,800 750,000 39% same-sex spouse was applied to lifetime gifts (or both). Enter the sum of 345,800 – – – – – – 1,000,000 40% lines 2 and 3 from Schedule C on the Form 709 filed for the year listed in Row (a) for the amount to be entered in this How to complete the Line 7 Work- 1981, enter the calendar year in Row (a) row. sheet. as (YYYY). If you filed returns for gifts Row (i). Enter the applicable amount Row (a). Beginning with the earliest made after 1976 and before 1982, enter from the Table of Basic Exclusion year in which the taxable gifts were the calendar quarters in Row (a) as Amounts. made, enter the tax period of prior gifts. (YYYY-Q). Row (j). Enter the sum of Row (h) and If you filed returns for gifts made after Row (i). Worksheet TG—Taxable Gifts Reconciliation Worksheet TG—Taxable Gifts Reconciliation (To be used for lines 4 and 7 of the Tax Computation)

a. b. Note. For the de nition of a taxable gift, see section 2503. Follow Form 709. That is, include only the decedent’s one-half of split gifts, whether the gifts were made 6, Calendar year or Total taxable gifts for by the decedent or the decedent’s spouse. In addition to gifts reported on Form calendar quarter period (see Note) 709, you must include any taxable gifts in excess of the annual exclusion that 1977 June were not reported on Form 709.

after c. d. e. f. before Taxable amount Taxable amount included in col. b for and Gift tax paid by Gift tax paid by made included in col. b gifts that qualify for decedent on gifts decedent’s spouse on for gifts included “special treatment of in col. d gifts in col. c in the gross estate Gifts 1932, 1. Total taxable gifts split gifts” described made before 1977 below made 1976 Gifts after

2. Totals for gifts made after 1976

Line 4 Worksheet—Adjusted Taxable Gifts Made After 1976

1. Taxable gifts made after 1976. Enter the amount from Worksheet TG, line 2, column b 1 2. Taxable gifts made after 1976 reportable on Schedule G. Enter the amount from Worksheet TG, line 2, column c 2 3. Taxable gifts made after 1976 that qualify for “special treatment.” Enter the amount from Worksheet TG, line 2, column d 3 4. Add lines 2 and 3 4 5. Adjusted taxable gifts. Subtract line 4 from line 1. Enter here and on Part 2—Tax Computation, line 4 5

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Row (k). Figure the applicable credit on Row (m). Subtract the amount in Row Row (q). Enter the Cumulative Taxable the amount in Row (j) using Table (l) from the amount in Row (k) to Gift amount based on the amount in A—Unified Rate Schedule, and enter determine the amount of any available Row (p) using the Taxable Gift Amount here. credit. Enter the result in Row (m). Table. Note. The entries in each column of Row (n). Enter the lesser of the Row (r). If Row (o) is greater than zero Row (k) must be reduced by 20% of the amounts in Row (g) or Row (m). in the applicable period, subtract Row amount allowed as a specific exemption Row (o). Subtract the amount in Row (q) from Row (d). If Row (o) is not for gifts made after September 8, 1976, (n) from the amount in Row (g) for the greater than zero, enter -0-. and before January 1, 1977 (but no current column. Repeat for each year in which more than $6,000). Row (p). Subtract the amount in Row taxable gifts were made. Row (l). Add the amounts in Row (l) (o) from the amount in Row (f) for the and Row (n) from the previous column. current column.

Line 7 Worksheet—Submit a copy with Form 706

Line 7 Worksheet, Part A—Used to determine Applicable Credit Allowable for Prior Periods after 1976 (a) Tax Period1 Pre-1977 (b) Taxable Gifts for Applicable Period (c) Taxable Gifts for Prior Periods2 (d) Cumulative Taxable Gifts Including Applicable Period (add Row (b) and Row (c)) (e) Tax at Date of Death Rates for Prior Gifts (from Row (c))3 (f) Tax at Date of Death Rates for Cumulative Taxable Gifts Including Applicable Period (from Row (d)) (g) Tax at Date of Death Rates for Gifts in Applicable Period (subtract Row (e) from Row (f)) (h) Total DSUE applied and Restorable Exclusion Amount from Prior Periods and Applicable Period (see instructions later) (i) Basic Exclusion for Applicable Period (Enter the amount from the Table of Basic Exclusion Amounts) (j) Applicable Exclusion Amount (add Row (h) and Row (i)) (k) Maximum Applicable Credit amount based on Row (j) (Using Table A—Unified Rate Schedule)4 (l) Applicable Credit amount used in Prior Periods (add Row (l) and Row (n) from prior period) (m) Available Credit in Applicable Period (subtract Row (l) from Row (k)) (n) Credit Allowable (lesser of Row (g) or Row (m)) (o) Tax paid or payable at Date of Death rates for Applicable Period (subtract Row (n) from Row (g)) (p) Tax on Cumulative Gifts less tax paid or payable for Applicable Period (subtract Row (o) from Row (f)) (q) Cumulative Taxable Gifts less Gifts in the Applicable Period on which tax was paid or payable based on Row (p) (Using the Taxable Gift Amount Table) (r) Gifts in the Applicable Period on which tax was payable (subtract Row (q) from Row (d)) Line 7 Worksheet, Part B 1 Total gift taxes payable on gifts after 1976 (sum of amounts in Row (o)). 2 Gift taxes paid by the decedent on gifts that qualify for “special treatment.” Enter the amount from Worksheet TG, line 2, col. e. 3 Subtract line 2 from line 1. 4 Gift tax paid by decedent's spouse on split gifts included on Schedule G. Enter amount from Worksheet TG, line 2, col. f. 5 Add lines 3 and 4. Enter here and on Part 2—Tax Computation, line 7. 6 Cumulative lifetime gifts on which tax was paid or payable. Enter this amount on line 3, Section C, Part 6 of Form 706 (sum of amounts in Row (r)). 1 Row (a): For annual returns, enter the tax period as (YYYY). For quarterly returns, enter tax period as (YYYY-Q). 2 Row (c): Enter amount from Row (d) of the previous column. 3 Row (e): Enter amount from Row (f) of the previous column. 4 Row (k): Figure the applicable credit on the amount in Row (j), using Table A—Unified Rate Schedule, and enter here. (For each column in Row (k), subtract 20% of any amount allowed as a specific exemption for gifts made after September 8, 1976, and before January 1, 1977.)

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Remember to submit a copy of If all four conditions above are met, adjusted for inflation under section ! the Line 7 Worksheet when you do not include these gifts on line 4 of the 2010(c)(3), is $11,700,000. CAUTION file Form 706. If additional Tax Computation and do not include the • Line 9b, the DSUE. If the decedent space is needed to report prior gifts, gift taxes payable on these gifts on had a spouse who died after 2010, please attach additional sheets. line 7 of the Tax Computation. These whose estate did not use all of its adjustments are incorporated into the applicable exclusion against gift or Note. In figuring the line 7 amount, do worksheets. estate tax liability, a DSUE amount may not include any tax paid or payable on be available for use by the decedent's gifts made before 1977. The line 7 Lines 9a Through 9e. estate. If the predeceased spouse died amount is a hypothetical figure used to Applicable Credit Amount in 2011, the DSUE amount was figured figure the estate tax. (Formerly Unified Credit and attached to his or her Form 706. If Special treatment of split gifts. Amount) the predeceased spouse died in 2012 or after, this amount is found in Part 6, These special rules apply only if: The applicable credit amount is Section C, of the Form 706 filed by the • The decedent's spouse predeceased allowable credit against estate and gift estate of the decedent's predeceased the decedent; taxes. It is figured by determining the spouse. The amount to be entered on • The decedent's spouse made gifts tentative tax on the applicable exclusion line 9b is figured in Part 6, Section D. that were “split” with the decedent under amount, which is the amount that can be Line 9c, the restored exclusion the rules of section 2513; transferred before an estate tax liability • amount. If a decedent made a taxable • The decedent was the “consenting will be incurred. spouse” for those split gifts, as that term gift during the decedent's lifetime to the is used on Form 709; and The applicable exclusion amount decedent's same-sex spouse and that • The split gifts were included in the equals the total of the following. transfer resulted in a reduction of the decedent's spouse's gross estate under • Line 9a, the basic exclusion amount. decedent's available applicable section 2035. In 2021, the basic exclusion amount, as exclusion amount, the amount of the applicable exclusion that was reduced Table of Basic Exclusion Amounts can be restored. If the applicable exclusion was previously restored on a Period Basic Exclusion Credit Equivalent Form 709, enter the value on Amount at 2021 Rates Schedule C, line 3, of Form 709. If the 1977 (Quarters 1 and 2) $30,000 $6,000 applicable exclusion has not yet been previously restored, follow the directions 1977 (Quarters 3 and 4) $120,667 $30,000 in the instructions for Form 709, 1978 $134,000 $34,000 Schedule C, to determine the Restored 1979 $147,333 $38,000 Exclusion Amount. The Restored Exclusion Amount is entered on line 9c. 1980 $161,563 $42,500 1981 $175,625 $47,000 The total of lines 9a, 9b, and 9c is entered on line 9d. If the amounts 1982 $225,000 $62,800 entered on both lines 9b and 9c are 1983 $275,000 $79,300 zero, enter $4,625,800 on line 9e. 1984 $325,000 $96,300 Otherwise, determine the applicable credit on the amount on line 9d by using 1985 $400,000 $121,800 Table A—Unified Rate Schedule and 1986 $500,000 $155,800 enter the result on line 9e. 1987 through 1997 $600,000 $192,800 Line 10. Adjustment to 1998 $625,000 $202,050 Applicable Credit 1999 $650,000 $211,300 If the decedent made gifts (including 2000 and 2001 $675,000 $220,550 gifts made by the decedent's spouse and treated as made by the decedent 2002 through 2010 $1,000,000 $345,800 by reason of gift splitting) after 2011 $5,000,000 $1,945,800 September 8, 1976, and before January 2012 $5,120,000 $1,993,800 1, 1977, for which the decedent claimed a specific exemption, the applicable 2013 $5,250,000 $2,045,800 credit amount on this estate tax return 2014 $5,340,000 $2,081,800 must be reduced. The reduction is 2015 $5,430,000 $2,117,800 figured by entering 20% of the specific exemption claimed for these gifts. 2016 $5,450,000 $2,125,800 Note. The specific exemption was 2017 $5,490,000 $2,141,800 allowed by section 2521 for gifts made 2018 $11,180,000 $4,417,800 before January 1, 1977. 2019 $11,400,000 $4,505,800 If the decedent did not make any gifts 2020 $11,580,000 $4,577,800 between September 8, 1976, and 2021 $11,700,000 $4,625,800 January 1, 1977, or if the decedent made gifts during that period but did not claim the specific exemption, enter zero.

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Line 15. Total Credits marital credit. See the 1995 Canadian estate by any method within 6 months Generally, line 15 is used to report the income tax treaty protocol for details on after the decedent's death is valued on total of credit for foreign death taxes figuring the credit. the date of distribution, sale, exchange, (line 13) and credit for tax on prior or other disposition. Value this property transfers (line 14). on the date it ceases to be a part of the Part 3—Elections by the gross estate; for example, on the date However, you may also use line 15 to Executor the title passes as the result of its sale, report credit taken for federal gift taxes exchange, or other disposition. imposed by chapter 12 of the Code, and Note. The election to allow the • Any property not distributed, sold, the corresponding provisions of prior decedent's surviving spouse to use the exchanged, or otherwise disposed of laws, on certain transfers the decedent decedent's unused exclusion amount is within the 6-month period is valued as of made before January 1, 1977, that are made by filing a timely and complete 6 months after the date of the included in the gross estate. The credit Form 706. See the instructions for Part decedent's death. cannot be more than the amount figured 6—Portability of Deceased Spousal • Any property, interest, or estate that by the following formula. Unused Exclusion, later, and sections is affected by mere lapse of time is 2010(c)(4) and (c)(5). valued as of the date of the decedent's Gross estate tax minus (the death or on the date of its distribution, sum of the state death taxes Value of Line 1. Alternate Valuation and unified credit) x included sale, exchange, or other disposition, See the example showing the whichever occurs first. However, you Value of gross estate minus gift use of Schedule B where the may change the date of death value to (the sum of the deductions for TIP charitable, public, and similar alternate valuation is adopted. account for any change in value that is not due to a “mere lapse of time” on the gifts and bequests and marital Unless you elect at the time the return is deduction) date of its distribution, sale, exchange, filed to adopt alternate valuation as or other disposition. authorized by section 2032, value all property included in the gross estate as The property included in the alternate When taking the credit for pre-1977 of the date of the decedent's death. valuation and valued as of 6 months federal gift taxes: Alternate valuation cannot be applied to after the date of the decedent's death, • Include the credit in the amount on only a part of the property. or as of some intermediate date (as line 15; and described above), is the property • Identify and enter the amount of the You may elect special-use valuation included in the gross estate on the date credit you are taking on the dotted line (line 2) in addition to alternate valuation. of the decedent's death. Therefore, you to the left of the entry space for line 15 must first determine what property was You may not elect alternate valuation on page 1 of Form 706 with a notation, part of the gross estate at the unless the election will decrease both “Section 2012 credit.” decedent's death. the value of the gross estate and the For more information, see the sum (reduced by allowable credits) of Interest. Interest accrued to the date of regulations under section 2012. This the estate and GST taxes payable by the decedent's death on bonds, notes, computation may be made using Form reason of the decedent's death for the and other interest-bearing obligations is 4808. Attach a copy of a completed property includible in the decedent's property of the gross estate on the date Form 4808 or the computation of the gross estate. of death and is included in the alternate credit. Also, attach all available copies valuation. of Forms 709 filed by the decedent, with Elect alternate valuation by checking "Exhibit to Estate Tax Return" entered “Yes” on line 1 and filing Form 706. You Rent. Rent accrued to the date of the across the top of the first page of each, may make a protective alternate decedent's death on leased real or to help verify the amounts entered on valuation election by checking “Yes” on personal property is property of the lines 4 and 7, and the amount of credit line 1, writing the word “protective,” and gross estate on the date of death and is taken (on line 15) for pre-1977 federal filing Form 706 using regular values. included in the alternate valuation. gift taxes. Once made, the election may not be Dividends. Outstanding dividends that Canadian marital credit. In addition to revoked. The election may be made on were declared to stockholders of record using line 15 to report credit for federal a late-filed Form 706, provided it is not on or before the date of the decedent's gift taxes on pre-1977 gifts, you may filed later than 1 year after the due date death are considered property of the also use line 15 to claim the Canadian (including extensions actually granted). gross estate on the date of death and marital credit, where applicable. Relief under Regulations sections are included in the alternate valuation. 301.9100-1 and 301.9100-3 may be Ordinary dividends declared to When taking the marital credit under stockholders of record after the date of the 1995 Canadian Protocol: available to make an alternate valuation election or a protective alternate the decedent's death are not included in • Include the credit in the amount on the gross estate on the date of death line 15; and valuation election, provided a Form 706 is filed no later than 1 year after the due and are not eligible for alternate • Identify and enter the amount of the valuation. However, if dividends are credit you are taking on the dotted line date of the return (including extensions actually granted). declared to stockholders of record after to the left of the entry space for line 15 the date of the decedent's death so that on page 1 of Form 706 with a notation, If alternate valuation is elected, value the shares of stock at the later valuation “Canadian marital credit.” the property included in the gross estate date do not reasonably represent the Also, attach a statement to the return as of the following dates, as applicable. same property at the date of the that refers to the treaty, waives • Any property distributed, sold, decedent's death, include those qualifying domestic trust (QDOT) rights, exchanged, or otherwise disposed of or dividends (except dividends paid from and shows the computation of the separated or passed from the gross earnings of the corporation after the

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date of the decedent's death) in the Line 2. Special-Use Valuation of regard to its special-use value. The alternate valuation. Section 2032A value is reduced for unpaid mortgages On Schedules A through I, you must on the property or any indebtedness show the following. In general. Under section 2032A, you against the property, if the full value of may elect to value certain farm and the decedent's interest in the property 1. What property is included in the closely held business real property at its (not reduced by such mortgage or gross estate on the date of the farm or business use value rather than indebtedness) is included in the value of decedent's death. its FMV. Both special-use valuation and the gross estate. The adjusted value of 2. What property was distributed, alternate valuation may be elected. the qualified real and personal property sold, exchanged, or otherwise disposed To elect special-use valuation, check used in different businesses may be of within the 6-month period after the “Yes” on line 2 and complete and attach combined to meet the 50% and 25% decedent's death, and the dates of Schedule A-1 and its required additional requirements. these distributions, etc. (These two statements. You must file Schedule A-1 items should be entered in the and its required attachments with Form Qualified Real Property “Description” column of each schedule. 706 for this election to be valid. You Briefly explain the status or disposition may make the election on a late-filed Qualified use. Qualified use means governing the alternate valuation date, return so long as it’s the first return filed. use of the property as a farm for farming such as “Not disposed of within 6 purposes or in a trade or business other months following death,” “Distributed,” The total value of the property valued than farming. Trade or business applies “Sold,” “Bond paid on maturity,” etc. In under section 2032A may not be only to the active conduct of a business. this same column, describe each item of decreased from FMV by more than It does not apply to passive investment principal and includible income.) $1,190,000 for decedents dying in activities or the mere passive rental of 2021. 3. The date of death value, entered property to a person other than a in the appropriate value column with Real property may qualify for the member of the decedent's family. Also, items of principal and includible income section 2032A election if: no trade or business is present in the shown separately. 1. The decedent was a U.S. citizen case of activities not engaged in for profit. 4. The alternate value, entered in or resident at the time of death; the appropriate value column with items 2. The real property is located in the Ownership. To qualify as special-use of principal and includible income United States; property, the decedent or a member of shown separately. (In the case of any 3. At the decedent's death, the real the decedent's family must have owned interest or estate, the value of which is property was used by the decedent or a and used the property in a qualified use affected by lapse of time, such as family member for farming or in a trade for 5 of the last 8 years before the patents, leaseholds, estates for the life or business, or was rented for such use decedent's death. Ownership may be of another, or remainder interests, the by either the surviving spouse or a lineal direct or indirect through a corporation, value shown under the heading descendant of the decedent to a family a partnership, or a trust. “Alternate value” must be the adjusted member on a net cash basis; If the ownership is indirect, the value, for example, the value as of the 4. The real property was acquired business must qualify as a closely held date of death with an adjustment from or passed from the decedent to a business under section 6166. The reflecting any difference in its value as qualified heir of the decedent; indirect ownership, when combined with of the later date not due to lapse of periods of direct ownership, must meet 5. The real property was owned and time.) the requirements of section 6166 on the used in a qualified manner by the date of the decedent's death and for a decedent or a member of the Note. If any property on Schedules A period of time that equals at least 5 of decedent's family during 5 of the 8 years through I is being valued pursuant to the the 8 years preceding death. special rule of Regulations section before the decedent's death; Directly owned property leased by 20.2010-2(a)(7)(ii), values for those 6. There was material participation the decedent to a separate closely held assets are not required to be reported by the decedent or a member of the business is considered qualified real on the schedule. See Part decedent's family during 5 of the 8 years property if the business entity to which it 5—Recapitulation, line 10, later. before the decedent's death; and was rented was a closely held business Distributions, sales, exchanges, and 7. The property meets the following (as defined by section 6166) for the other dispositions of the property within percentage requirements. decedent on the date of the decedent's the 6-month period after the decedent's a. At least 50% of the adjusted death and for sufficient time to meet the death must be supported by evidence. If value of the gross estate must consist of “5 in 8 years” test explained above. the court issued an order of distribution the adjusted value of real or personal during that period, you must submit a Structures and other real property property that was being used as a farm certified copy of the order as part of the improvements. Qualified real property or in a closely held business and that evidence. The IRS may require you to includes residential buildings and other was acquired from, or passed from, the submit additional evidence, if structures and real property decedent to a qualified heir of the necessary. improvements regularly occupied or decedent. If the alternate valuation method is used by the owner or lessee of real b. At least 25% of the adjusted property (or by the employees of the used, the values of life estates, value of the gross estate must consist of remainders, and similar interests are owner or lessee) to operate a farm or the adjusted value of qualified farm or other closely held business. A farm figured using the age of the recipient on closely held business real property. the date of the decedent's death and the residence that the decedent occupied is value of the property on the alternate For this purpose, adjusted value is considered to have been occupied for valuation date. the value of property determined without the purpose of operating the farm even

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when a family member and not the a crop plan and financial reports each net share rentals. If neither of these is decedent was the person materially season or business year. available, or if you so elect, you can use participating in the operation of the farm. the method for valuing real property in a Qualified real property also includes In determining whether the required closely held business. roads, buildings, and other structures participation has occurred, disregard brief periods (that is, 30 days or less) Average annual gross cash rental. and improvements functionally related Generally, the special-use value of to the qualified use. during which there was no material participation, as long as such periods property that is used for farming Elements of value such as mineral were both preceded and followed by purposes is determined as follows. rights that are not related to the farm or substantial periods (more than 120 1. Subtract the average annual state business use are not eligible for days) during which there was and local real estate taxes on actual special-use valuation. uninterrupted material participation. tracts of comparable real property from Property acquired from the dece- the average annual gross cash rental for Retirement or disability. If, on the that same comparable property. dent. Property is considered to have date of death, the time period for been acquired from or to have passed material participation could not be met 2. Divide the result in (1) by the from the decedent if one of the following because the decedent was retired or average annual effective interest rate applies. disabled, a substitute period may apply. charged for all new federal land bank • The property is considered to have The decedent must have retired on loans. See Effective interest rate, later. been acquired from or to have passed social security or been disabled for a from the decedent under section The computation of each average continuous period ending with death. A annual amount is based on the 5 most 1014(b) (relating to basis of property person is disabled for this purpose if he acquired from a decedent). recent calendar years ending before the or she was mentally or physically unable date of the decedent's death. • The property is acquired by any to materially participate in the operation person from the estate. of the farm or other business. Gross cash rental. Generally, • The property is acquired by any The substitute time period for gross cash rental is the total amount of person from a trust, to the extent the cash received in a calendar year for the property is includible in the gross estate. material participation for these decedents is a period totaling at least 5 use of actual tracts of comparable farm Qualified heir. A person is a qualified years out of the 8-year period that real property in the same locality as the heir of property if he or she is a member ended on the earlier of: property being specially valued. You of the decedent's family and acquired or • The date the decedent began may not use: received the property from the receiving social security benefits, or • Appraisals or other statements decedent. If a qualified heir disposes of • The date the decedent became regarding rental value or areawide any interest in qualified real property to disabled. averages of rentals, any member of his or her family, that • Rents paid wholly or partly in-kind, or person will then be treated as the Surviving spouse. A surviving spouse • Property for which the amount of rent qualified heir for that interest. who received qualified real property is based on production. from the predeceased spouse is A member of the family includes only: The rental must have resulted from considered to have materially an arm's-length transaction and the • An ancestor (parent, grandparent, participated if he or she was engaged in etc.) of the individual; amount of rent may not be reduced by the active management of the farm or the amount of any expenses or liabilities • The spouse of the individual; other business. If the surviving spouse • The lineal descendant (child, associated with the farm operation or died within 8 years of the first spouse's the lease. stepchild, grandchild, etc.) of the death, you may add the period of individual, the individual's spouse, or a material participation of the Comparable property. parent of the individual; or predeceased spouse to the period of Comparable property must be situated • The spouse, widow, or widower of active management by the surviving in the same locality as the qualified real any lineal descendant described above. spouse to determine if the surviving property as determined by generally spouse's estate qualifies for special-use accepted real property valuation rules. Note. A legally adopted child of an valuation. To qualify for this, the The determination of comparability is individual is treated as a child of that property must have been eligible for based on a number of factors, none of individual by blood. special-use valuation in the which carries more weight than the predeceased spouse's estate, though it others. It is often necessary to value Material Participation does not have to have been elected by land in segments where there are To elect special-use valuation, either the that estate. different uses or land characteristics decedent or a member of his or her For additional details regarding included in the specially valued land. family must have materially participated material participation, see Regulations The following list contains some of in the operation of the farm or other section 20.2032A-3(e). the factors considered in determining business for at least 5 of the 8 years comparability. ending on the date of the decedent's Valuation Methods • Similarity of soil. death. The existence of material • Whether the crops grown would participation is a factual determination. The primary method of valuing deplete the soil in a similar manner. Passively collecting rents, salaries, special-use property that is used for • Types of soil conservation techniques draws, dividends, or other income from farming purposes is the annual gross that have been practiced on the two the farm or other business is not cash rental method. If comparable gross properties. sufficient for material participation, nor is cash rentals are not available, you can • Whether the two properties are merely advancing capital and reviewing substitute comparable average annual subject to flooding.

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• Slope of the land. for qualifying farm property if there is no For example, if a surviving spouse • For livestock operations, the carrying comparable land or if you elect to use it. receives a life estate in otherwise capacity of the land. Under this method, the following factors qualified property and the spouse's • For timbered land, whether the timber are considered. brother receives a remainder interest in is comparable. • The capitalization of income that the fee, no part of the property may be • Whether the property as a whole is property can be expected to yield for valued under a section 2032A election. unified or segmented. If segmented, the farming or for closely held business availability of the means necessary for purposes over a reasonable period of Where successive interests in movement among the different sections. time with prudent management and specially valued property are created, • Number, types, and conditions of all traditional cropping patterns for the remainder interests are treated as being buildings and other fixed improvements area, taking into account soil capacity, received by qualified heirs only if the located on the properties and their terrain configuration, and similar factors. remainder interests are not contingent location as it affects efficient • The capitalization of the fair rental on surviving a nonfamily member or are management, use, and value of the value of the land for farming or for not subject to divestment in favor of a property. closely held business purposes. nonfamily member. • Availability and type of transportation • The assessed land values in a state facilities in terms of costs and of that provides a differential or use value Protective Election proximity of the properties to local assessment law for farmland or closely You may make a protective election to markets. held business. specially value qualified real property. Comparable sales of other farm or You must specifically identify on the • Under this election, whether or not you closely held business land in the same return the property being used as may ultimately use special-use valuation geographical area far enough removed comparable property. Use the type of depends upon final values (as shown on from a metropolitan or resort area so descriptions used to list real property on the return determined following that nonagricultural use is not a Schedule A. examination of the return) meeting the significant factor in the sales price. requirements of section 2032A. Effective interest rate. See Tables • Any other factor that fairly values the 1 and 2 of Rev. Rul. 2021-15, 2021-35 farm or closely held business value of To make a protective election, check I.R.B. 331, available at Rev. Rul. the property. “Yes” on line 2 and complete 2021-15, for the average annual Schedule A-1 according to the effective interest rates in effect for 2021. Making the Election instructions for Protective election, later. Net share rental. You may use Include the words “Section 2032A average annual net share rental from valuation” in the “Description” column of If you make a protective election, comparable land only if there is no any Form 706 schedule if section 2032A complete the initial Form 706 by valuing comparable land from which average property is included in the decedent's all property at its FMV. Do not use annual gross cash rental can be gross estate. special-use valuation. Usually, this will determined. Net share rental is the result in higher estate and GST tax difference between the gross value of An election under section 2032A liabilities than will be ultimately produce received by the lessor from the need not include all the property in an determined if special-use valuation is comparable land and the cash operating estate that is eligible for special-use allowed. The protective election does expenses (other than real estate taxes) valuation, but sufficient property to not extend the time to pay the taxes of growing the produce that, under the satisfy the threshold requirements of shown on the return. If you wish to lease, are paid by the lessor. The section 2032A(b)(1)(B) must be extend the time to pay the taxes, file production of the produce must be the specially valued under the election. Form 4768 in adequate time before the business purpose of the farming due date of the return. See the Instructions for Form 4768. operation. For this purpose, produce If joint or undivided interests (that is, includes livestock. interests as joint tenants or tenants in If the estate qualifies for special-use The gross value of the produce is common) in the same property are valuation based on the values as finally generally the gross amount received if received from a decedent by qualified determined, you must file an amended the produce was disposed of in an heirs, an election for one heir's joint or Form 706 (with a complete section arm's-length transaction within the undivided interest need not include any 2032A election) within 60 days after the period established by the Department of other heir's interest in the same property date of this determination. Prepare the Agriculture for its price support program. if the electing heir's interest plus other amended return using special-use Otherwise, the value is the weighted property to be specially valued satisfies values under the rules of section 2032A, average price for which the produce the requirements of section 2032A(b)(1) complete Schedule A-1, and attach all sold on the closest national or regional (B). of the required statements. commodities market. The value is figured for the date or dates on which If successive interests (that is, life the lessor received (or constructively estates and remainder interests) are Additional Information received) the produce. created by a decedent in otherwise For definitions and additional Valuing a real property interest in a qualified property, an election under information, see section 2032A and the closely held business. Use this section 2032A is available only for that related regulations. method to determine the special-use property (or part) in which qualified heirs of the decedent receive all of the Line 3. Section 6166 Installment valuation for qualifying real property Payments used in a trade or business other than successive interests, and such an farming. You may also use this method election must include the interests of all If the gross estate includes an interest in of those heirs. a closely held business, you may be

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able to elect to pay part of the estate tax those values to meet the percentage partnerships or corporations owning real in installments under section 6166. requirements. property interests constitute a closely held business, see Rev. Rul. 2006-34, The maximum amount that can be Transfers before death. Generally, 2006-26 I.R.B. 1171, available at paid in installments is that part of the gifts made before death are not IRS.gov/pub/irs-irbs/irb06-26.pdf. estate tax that is attributable to the included in the gross estate. However, In determining the number of closely held business; see Determine the estate must meet the 35% partners or shareholders, a partnership how much of the estate tax may be paid requirement by both including in and or stock interest is treated as owned by in installments under section 6166, later. excluding from the gross estate any gifts one partner or shareholder if it is In general, that amount is the amount of made by the decedent in the 3-year community property or held by a tax that bears the same ratio to the total period ending on the date of death. husband and wife as joint tenants, estate tax that the value of the closely Passive assets. In determining the tenants in common, or tenants by the held business included in the gross value of a closely held business and entirety. estate bears to the adjusted gross whether the 35% requirement is met, do estate. Property owned directly or indirectly not include the value of any passive by or for a corporation, partnership, Bond or lien. The IRS may require that assets held by the business. A passive estate, or trust is treated as owned an estate furnish a surety bond when asset is any asset not used in carrying proportionately by or for its granting the installment payment on a trade or business. Any asset used shareholders, partners, or beneficiaries. election. In the alternative, the executor in a qualifying lending and financing For trusts, only beneficiaries with may consent to elect the special lien business is treated as an asset used in present interests are considered. provisions of section 6324A in lieu of the carrying on a trade or business; see bond. The IRS will contact you section 6166(b)(10) for details. Stock in The interest in a closely held farm regarding the specifics of furnishing the another corporation is a passive asset business includes the interest in the bond or electing the special lien. The unless the stock is treated as held by residential buildings and related IRS will make this determination on a the decedent because of the election to improvements occupied regularly by the case-by-case basis, and you may be treat holding company stock as owners, lessees, and employees asked to provide additional information. business company stock; see Holding operating the farm. If you elect the lien provisions, company stock, later. Holding company stock. The section 6324A requires that the lien be If a corporation owns at least 20% in executor may elect to treat as business placed on property having a value equal value of the voting stock of another company stock the portion of any to the total deferred tax plus 4 years of corporation, or the other corporation holding company stock that represents interest. The property must be expected had no more than 45 shareholders and direct ownership (or indirect ownership to survive the deferral period, and does at least 80% of the value of the assets of through one or more other holding not necessarily have to be property of each corporation is attributable to companies) in a business company. A the estate. In addition, all people with an assets used in carrying on a trade or holding company is a corporation interest in the designated property must business, then these corporations will holding stock in another corporation. A consent to the creation of this lien. be treated as a single corporation and business company is a corporation the stock will not be treated as a passive carrying on a trade or business. Percentage requirements. To qualify asset. Stock held in the other for installment payments, the value of In general, this election applies only corporation is not taken into account in to stock that is not readily tradable. the interest in the closely held business determining the 80% requirement. that is included in the gross estate must However, the election can be made if be more than 35% of the adjusted gross Interest in a closely held business. the business company stock is readily estate (the gross estate less expenses, For purposes of the installment payment tradable, as long as all of the stock of indebtedness, taxes, and election, an interest in a closely held each holding company is not readily losses—Schedules J, K, and L of Form business means: tradable. 706 (do not include any portion of the • Ownership of a trade or business For purposes of the state death tax deduction)). carried on as a proprietorship, 20%-voting-stock requirement, stock is Interests in two or more closely held • An interest as a partner in a treated as voting stock to the extent the businesses are treated as an interest in partnership carrying on a trade or holding company owns voting stock in a single business if at least 20% of the business if 20% or more of the total the business company. total value of each business is included capital interest was included in the If the executor makes this election, in the gross estate. For this purpose, gross estate of the decedent or the the first installment payment is due include any interest held by the partnership had no more than 45 when the estate tax return is filed. The surviving spouse that represents the partners, or 5-year deferral for payment of the tax, surviving spouse's interest in a business • Stock in a corporation carrying on a as discussed later under Time for held jointly with the decedent as trade or business if 20% or more in payment, does not apply. In addition, community property or as joint tenants, value of the voting stock of the the 2% interest rate, discussed later tenants by the entirety, or tenants in corporation is included in the gross under Interest computation, will not common. estate of the decedent or the apply. Also, if the business company corporation had no more than 45 stock is readily tradable, as explained Value. The value used for meeting shareholders. above, the tax must be paid in five the percentage requirements is the The partnership or corporation must installments. same value used for determining the be carrying on a trade or business at the gross estate. Therefore, if the estate is time of the decedent's death. For further Determine how much of the estate valued under alternate valuation or information on whether certain tax may be paid in installments un- special-use valuation, you must use der section 6166. To determine

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whether the election may be made, you terminated, and the unpaid portion of underpayment rate. The amount of each must figure the adjusted gross estate. the tax will be due upon notice and installment that is subject to the 2% rate (See the Line 3 Worksheet—Adjusted demand. See section 6166(g)(1)(A). is the same as the percentage of total Gross Estate below.) To determine the tax payable in installments that is Interest computation. A special value of the adjusted gross estate, subject to the 2% rate. interest rate applies to installment subtract the deductions (Schedules J, payments. For decedents dying in 2021, The interest paid on installment K, and L) from the value of the gross the interest rate is 2% on the lesser of: payments is not deductible as estate. ! • $636,000, or CAUTION an administrative expense of To determine over how many • The amount of the estate tax that is the estate. installments the estate tax may be paid, attributable to the closely held business please refer to sections 6166(a), (b)(7), and that is payable in installments. Making the election. If you check this (b)(8), and (b)(10). line to make a final election, you must 2% portion. The 2% portion is an attach the notice of election described in Time for payment. Under the amount equal to the amount of the installment method, the executor may Regulations section 20.6166-1(b). If you tentative estate tax (on $1 million plus check this line to make a protective elect to defer payment of the qualified the applicable exclusion amount in estate tax, but not interest, for up to 5 election, you must attach a notice of effect) minus the applicable credit protective election as described in years from the original payment due amount in effect. However, if the date. After the first installment of tax is Regulations section 20.6166-1(d). amount of estate tax extended under Regulations section 20.6166-1(b) paid, you must pay the remaining section 6166 is less than the amount installments annually by the date 1 year requires that the notice of election is figured above, the 2% portion is the made by attaching to a timely filed after the due date of the preceding lesser amount. installment. There can be no more than estate tax return the following 10 installment payments. Inflation adjustment. The $1 information. • The decedent's name and taxpayer Interest on the unpaid portion of the million amount used to figure the 2% portion is indexed for inflation for the identification number (TIN) as they tax is not deferred and must be paid appear on the estate tax return. annually. Interest must be paid at the estates of decedents who died in a calendar year after 1998. For an estate • The amount of tax that is to be paid in same time as and as a part of each installments. installment payment of the tax. of a decedent who died in 2021, the dollar amount used to determine the • The date selected for payment of the Acceleration of payments. If the “2% portion” of the estate tax payable in first installment. estate fails to make payments of tax or installments under section 6166 is • The number of annual installments, interest within 6 months of the due date, $1,590,000. including first installment, in which the the IRS may terminate the right to make tax is to be paid. installment payments and force an Computation. Interest on the • The properties shown on the estate acceleration of payment of the tax upon portion of the tax in excess of the 2% tax return that are the closely held notice and demand. portion is figured at 45% of the annual business interest (identified by schedule rate of interest on underpayments. This and item number). Generally, if any portion of the rate is based on the federal short-term interest in the closely held business • The facts that formed the basis for the rate and is announced quarterly by the executor's conclusion that the estate which qualifies for installment payments IRS in the Internal Revenue Bulletin. is distributed, sold, exchanged, or qualifies for payment of the estate tax in otherwise disposed of, or money and If you elect installment payments and installments. other property attributable to such an the estate tax due is more than the You may also elect to pay certain interest is withdrawn, and the aggregate maximum amount to which the 2% GST taxes in installments. See section of those events equals or exceeds 50% interest rate applies, each installment 6166(i). payment is deemed to comprise both of the value of the interest, then the right Line 4. Reversionary or to make installment payments will be tax subject to the 2% interest rate and tax subject to 45% of the regular Remainder Interests Line 3 Worksheet—Adjusted Gross Estate For details of this election, see section 6163 and the related regulations. 1. Enter the value of the decedent's interest in closely held business(es) included in the gross estate (less value of passive assets, as mentioned in section 6166(b)(9)) ...... Part 4—General 2. Enter the value of the gross estate (Form 706, Part 5, line 13) ..... Information 3. Add lines 18, 19, and 20 from Form 706, Part 5 ...... Authorization 4. Subtract line 3 from line 2 to figure the adjusted gross estate ...... 5. Divide line 1 by line 4 to figure the value the business interest bears to Completing the authorization will the value of the adjusted gross estate. For purposes of this calculation, authorize one attorney, accountant, or carry the decimal to the sixth place; the IRS will make this adjustment for enrolled agent to represent the estate purposes of determining the correct amount. If this amount is less than and receive confidential tax information, 0.350000, the estate does not qualify to make the election under section but will not authorize the representative 6166 ...... to enter into closing agreements for the 6. Multiply line 5 by the amount on line 16 of Form 706, Part 2. This is the estate. If you would like to authorize maximum amount of estate tax that may be paid in installments under your representative to enter into section 6166. (Certain GST taxes may be deferred as well; see section agreements or perform other 6166(i) for more information.) ...... designated acts on behalf of the estate, you must file Form 2848 with Form 706.

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Note. If you intend for the (or will receive) benefits of $5,000 or Form 706, see the instructions for representative to represent the estate more from the estate directly as an heir, Schedule PC, later. before the IRS, he or she must complete next-of-kin, devisee, or legatee; or and sign this authorization. indirectly (for example, as beneficiary of Line 7. Section 2044 Property If you answered “Yes,” these assets Complete and attach Form 2848 if an annuity or insurance policy, must be shown on Schedule F. you would like to authorize: shareholder of a corporation, or partner • Persons other than attorneys, of a partnership that is an heir, etc.). Section 2044 property is property for accountants, or enrolled agents to Identifying number. Enter the SSN of which a previous section 2056(b)(7) represent the estate; each individual beneficiary listed. If the election (QTIP election) has been made, • More than one person to receive number is unknown, or the individual or for which a similar gift tax election confidential information or represent the has no number, please indicate (section 2523) has been made. For estate; or “unknown” or “none.” For trusts and more information, see the instructions • Someone to sign agreements, other estates, enter the employer for Schedule F, later. consents, waivers, or other documents identification number (EIN). for the estate. Line 9. Insurance Not Included Relationship. For each individual in the Gross Estate Filing a completed Form 2848 with beneficiary, enter the relationship (if If you answered “Yes” to either line 9a or this return may expedite processing of known) to the decedent by reason of 9b, for each policy you must complete the Form 706. blood, marriage, or adoption. For trust and attach Schedule D, Form 712, and or estate beneficiaries, indicate If you wish only to authorize an explanation of why the policy or its “TRUST” or “ESTATE.” someone to inspect and/or receive proceeds are not includible in the gross confidential tax information (but not to Amount. Enter the amount actually estate. represent you before the IRS), complete distributed (or to be distributed) to each and file Form 8821. beneficiary including transfers during Line 11. Partnership Interests and Stock in Close Line 3 the decedent's life from Schedule G required to be included in the gross Corporations Enter the marital status of the decedent estate. The value to be entered need If you answered “Yes” on line 11a, you at the time of death by checking the not be exact. A reasonable estimate is appropriate box on line 3a. If the must include full details for partnerships sufficient. For example, where precise (including family limited partnerships), decedent was married at the time of values cannot readily be determined, as death, complete line 4. If the decedent unincorporated businesses, and limited with certain future interests, a liability companies (LLCs) on had one or more prior marriages, reasonable approximation should be complete line 3b by providing the name Schedule F (Schedule E if the entered. The total of these distributions partnership interest is jointly owned). and SSN of each former spouse, the should approximate the amount of gross date(s) the marriage ended, and specify Also include full details for fractional estate reduced by funeral and interests in real estate on Schedule A whether the marriage ended by administrative expenses, debts and annulment, divorce decree, or death of and for stock of inactive or close mortgages, bequests to surviving corporations on Schedule B. spouse. If the prior marriage ended in spouse, charitable bequests, and any death and the predeceased spouse federal and state estate and GST taxes Value these interests using the rules died after December 31, 2010, paid (or payable) relating to the benefits of Regulations section 20.2031-2 complete Part 6—Portability of received by the beneficiaries listed on (stocks) or 20.2031-3 (other business Deceased Spousal Unused Exclusion, lines 4 and 5. interests). Section D, if the estate of the predeceased spouse elected to allow All distributions of less than $5,000 to A close corporation is a corporation the decedent to use any unused specific beneficiaries may be included whose shares are owned by a limited exclusion amount. For more with distributions to unascertainable number of shareholders. Often, one information, see section 2010(c)(4) and beneficiaries on the line provided. family holds the entire stock issue. As a related regulations. result, little, if any, trading of the stock Line 6. Protective Claim for takes place. There is, therefore, no Line 4 Refund established market for the stock, and Complete line 4 whether or not there is a If you answered “Yes,” complete those sales that do occur are at irregular surviving spouse and whether or not the Schedule PC for each claim. Two intervals and seldom reflect all the surviving spouse received any benefits copies of each Schedule PC must be elements of a representative transaction from the estate. If there was no surviving filed with the return. as defined by FMV. spouse on the date of decedent's death, Line 13. Trusts enter “None” on line 4a and leave lines A protective claim for refund may be 4b and 4c blank. The value entered on filed when there is an unresolved claim If you answered “Yes” on either line 13a line 4c need not be exact. See Amount or expense that will not be deductible or line 13b, attach a copy of the trust under line 5, later. under section 2053 before the instrument for each trust. expiration of the period of limitation Complete Schedule G if you Note. Do not include any DSUE under section 6511(a). To preserve the answered “Yes” on line 13a and amount transferred to the surviving estate's right to a refund once the claim Schedule F if you answered “Yes” on spouse in the total entered on line 4c. or expense has been finally determined, line 13b. the protective claim must be filed before Line 5 the end of the limitations period. For Line 15. Foreign Accounts Name. Enter the name of each more information on how to file a Check “Yes” on line 15 if the decedent individual, trust, or estate that received protective claim for refund with this at the time of death had an interest in or

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signature or other authority over a amount (see section 6018(a)) and Form gifts is less than the basic exclusion financial account in a foreign country, 706 is being filed only to elect portability amount (see section 6018(a)) and Form such as a bank account, securities of the DSUE amount, the estate is not 706 is being filed only to elect portability account, an offshore trust, or other required to report the value of certain of the DSUE amount, the estate is not financial account. property eligible for the marital or required to report the value of certain charitable deduction. For this property property eligible for the marital or being reported on Schedules A, B, C, D, charitable deduction. For this property Part 5—Recapitulation E, F, G, H, and I, the executor must being reported on Schedule M or O, Gross Estate—Items 1 Through figure his or her best estimate of the enter on line 23 the amount from line 10. value. Do not include the estimated 11 value on the line corresponding to the Items 1 through 9. You must make an schedule on which the property was Part 6—Portability of entry in each of items 1 through 9. reported. Instead, total the estimated Deceased Spousal Unused If the gross estate does not contain value of the assets subject to the Exclusion (DSUE) special rule and enter on line 10 the any assets of the type specified by a Section 303 of the Tax Relief, amount from the Table of Estimated given item, enter zero for that item. Unemployment Insurance Values, later, that corresponds to that Entering zero for any of items 1 through Reauthorization, and Job Creation Act total. 9 is a statement by the executor, made of 2010 authorized estates of decedents under penalties of perjury, that the gross Note. The special rule does not apply if dying after December 31, 2010, to elect estate does not contain any includible the valuation of the asset is needed to to transfer any unused exclusion to the assets covered by that item. determine the estate's eligibility for the surviving spouse. The amount received Do not enter any amounts in the provisions of section 2032, 2032A, by the surviving spouse is called the “Alternate value” column unless you 2652(a)(3), or 6166, or any other deceased spousal unused exclusion elected alternate valuation on line 1 of provision of the Code or regulations. (DSUE) amount. If the executor of the Part 3—Elections by the Executor. decedent’s estate elects transfer, or Note. As applies to all other values portability, of the DSUE amount, the Note. If estimating the value of one or reported on Form 706, estimates of the surviving spouse can apply the DSUE more assets pursuant to the special rule value of property subject to the special amount received from the estate of his of Regulations section 20.2010-2(a)(7) rule of Regulations section 20.2010-2(a) or her last deceased spouse (defined (ii), do not enter values for those assets (7)(ii) must result from the executor’s later) against any tax liability arising in items 1 through 9. Total the estimated exercise of due diligence and are from subsequent lifetime gifts and values for those assets and follow the subject to penalties of perjury. transfers at death. instructions for item 10. Exclusion—Item 12 Note. A nonresident surviving spouse Which schedules to attach for items who is not a citizen of the United States Item 12. Conservation easement ex- 1 through 9. You must attach the may not take into account the DSUE clusion. Complete and attach following. amount of a deceased spouse, except Schedule U (along with any required • Schedule F. Answer its questions to the extent allowed by treaty with his attachments) to claim the exclusion on even if you report no assets on it. or her country of citizenship. • Schedules A, B, and C, if the gross this line. estate includes any (1) Real Estate, (2) Deductions—Items 14 Through Last Deceased Spouse Stocks and Bonds, or (3) Mortgages, 23 Limitation Notes, and Cash, respectively. The last deceased spouse is the most • Schedule D, if the gross estate Items 14 through 22. Attach the recently deceased person who was includes any life insurance or if you appropriate schedules for the married to the surviving spouse at the answered “Yes” to question 9a of Part deductions claimed. time of that person’s death. The identity 4—General Information. Item 18. If item 17 is less than or equal of the last deceased spouse is • Schedule E, if the gross estate determined as of the day a taxable gift is contains any jointly owned property or if to the value (at the time of the decedent's death) of the property made, or in the case of a transfer at you answered “Yes” to question 10 of death, the date of the surviving spouse's Part 4—General Information. subject to claims, enter the amount from item 17 on item 18. death. The identity of the last deceased • Schedule G, if the decedent made spouse is not impacted by whether the If the amount on item 17 is more than any of the lifetime transfers to be listed decedent's estate elected portability or the value of the property subject to on that schedule or if you answered whether the last deceased spouse had claims, enter the greater of: “Yes” to question 12 or 13a of Part any DSUE amount available. The value of the property subject to 4—General Information. • Remarriage also does not affect the claims, or • Schedule H, if you answered “Yes” to designation of the last deceased The amount actually paid at the time question 14 of Part 4—General • spouse and does not prevent the the return is filed. Information. surviving spouse from applying the • Schedule I, if you answered “Yes” to In no event should you enter more on DSUE amount to taxable transfers. question 16 of Part 4—General item 18 than the amount on item 17. information. See section 2053 and the related When a taxable gift is made, the regulations for more information. DSUE amount received from the last Item 10. Under Regulations section deceased spouse is applied before the 20.2010-2(a)(7)(ii), if the total value of Item 23. Under Regulations section surviving spouse’s basic exclusion the gross estate and adjusted taxable 20.2010-2(a)(7)(ii), if the total value of amount. A surviving spouse may use gifts is less than the basic exclusion the gross estate and adjusted taxable the DSUE amount of the last deceased

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Table of Estimated Values spouse to offset the tax on any taxable transfer made after the deceased If the total estimated value of But less than or equal to: Include this amount on lines 10 spouse's death. A surviving spouse who the assets eligible for the and 23: has more than one predeceased special rule under Reg. section spouse is not precluded from using the 20.2010-2(a)(7)(ii) is more than: . . . DSUE amount of each spouse in $0 $250,000 $250,000 succession. A surviving spouse may not $250,000 $500,000 $500,000 use the sum of DSUE amounts from multiple predeceased spouses at one $500,000 $750,000 $750,000 time nor may the DSUE amount of a $750,000 $1,000,000 $1,000,000 predeceased spouse be applied after $1,000,000 $1,250,000 $1,250,000 the death of a subsequent spouse. $1,250,000 $1,500,000 $1,500,000 Making the Election $1,500,000 $1,750,000 $1,750,000 A timely filed and complete Form 706 is $1,750,000 $2,000,000 $2,000,000 required to elect portability of the DSUE $2,000,000 $2,250,000 $2,250,000 amount to a surviving spouse. The filing $2,250,000 $2,500,000 $2,500,000 requirement applies to all estates of decedents choosing to elect portability $2,500,000 $2,750,000 $2,750,000 of the DSUE amount, regardless of the $2,750,000 $3,000,000 $3,000,000 size of the estate. A timely filed return is $3,000,000 $3,250,000 $3,250,000 one that is filed on or before the due date of the return, including extensions. $3,250,000 $3,500,000 $3,500,000 $3,500,000 $3,750,000 $3,750,000 The timely filing of a complete Form $3,750,000 $4,000,000 $4,000,000 706 with DSUE will be deemed a portability election if there is a surviving $4,000,000 $4,250,000 $4,250,000 spouse. The election is effective as of $4,250,000 $4,500,000 $4,500,000 the decedent’s date of death, so the $4,500,000 $4,750,000 $4,750,000 DSUE amount received by a surviving $4,750,000 $5,000,000 $5,000,000 spouse may be applied to any transfer occurring after the decedent’s death. A $5,000,000 $5,250,000 $5,250,000 portability election is irrevocable, unless $5,250,000 $5,500,000 $5,500,000 an adjustment or amendment to the $5,500,000 $5,750,000 $5,750,000 election is made on a subsequent return $5,750,000 $6,000,000 $6,000,000 filed on or before the due date. $6,000,000 $6,250,000 $6,250,000 Note. Under Regulations section $6,250,000 $6,500,000 $6,500,000 20.2010-2(a)(5), the executor of an $6,500,000 $6,750,000 $6,750,000 estate of a nonresident decedent who was not a citizen of the United States at $6,750,000 $7,000,000 $7,000,000 the time of death cannot make a $7,000,000 $7,250,000 $7,250,000 portability election. $7,250,000 $7,500,000 $7,500,000 If an executor is appointed, qualified, $7,500,000 $7,750,000 $7,750,000 and acting with the United States on $7,750,000 $8,000,000 $8,000,000 behalf of the decedent’s estate, only $8,000,000 $8,250,000 $8,250,000 that executor may make or opt out of a $8,250,000 $8,500,000 $8,500,000 portability election. If there is no executor, see Regulations section $8,500,000 $8,750,000 $8,750,000 20.2010-2(a)(6)(ii). $8,750,000 $9,000,000 $9,000,000 Opting Out $9,000,000 $9,250,000 $9,250,000 If an estate files a Form 706 but does $9,250,000 $9,500,000 $9,500,000 not wish to make the portability election, $9,500,000 $9,750,000 $9,750,000 the executor can opt out of the $9,750,000 $10,000,000 $10,000,000 portability election by checking the box $10,000,000 $10,250,000 $10,250,000 indicated in Section A of this Part. If no return is required under section 6018(a), $10,250,000 $10,500,000 $10,500,000 not filing Form 706 will avoid making the $10,500,000 $10,750,000 $10,750,000 election. $10,750,000 $11,000,000 $11,000,000 Figuring the DSUE Amount $11,000,000 $11,180,000 $11,180,000 Regulations section 20.2010-2(b)(1) $11,180,000 $11,400,000 $11,400,000 requires that a decedent's DSUE be $11,400,000 $11,580,000 $11,580,000 figured on the estate tax return. The $11,580,000 $11,700,000 $11,700,000 DSUE amount is the lesser of (a) the basic exclusion amount in effect on the

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date of death of the decedent whose and still receive a marital deduction. Section D. DSUE Amount Received DSUE is being figured, or (b) the When property passes to a QDOT, From Predeceased Spouse(s). decedent's applicable exclusion amount estate tax is imposed under section Complete Section D if the decedent was less the amount on line 5 of Part 2—Tax 2056A as distributions are made from a surviving spouse who received a Computation on the Form 706 for the the trust. When a QDOT is established DSUE amount from one or more estate of the decedent. Amounts on and there is a DSUE amount, the predeceased spouses. which gift taxes were paid are excluded executor of the decedent’s estate will from adjusted taxable gifts for the determine a preliminary DSUE amount Section D requests information on all purpose of this computation. for the purpose of electing portability. DSUE amounts received from the This amount will decrease as section decedent’s last deceased spouse and When a surviving spouse applies the 2056A distributions are made. In estates any previously deceased spouses. DSUE amount to a lifetime gift or with a QDOT, the DSUE amount Each line in the chart should reflect a bequest at death, the IRS may examine generally may not be applied against tax different predeceased spouse; enter the any return of a predeceased spouse arising from lifetime gifts because it will calendar year(s) in column F. In Part 1, whose executor elected portability to not be available to the surviving spouse provide information on the decedent’s verify the allowable DSUE amount. The until it is finally determined, usually upon last deceased spouse. In Part 2, provide DSUE amount may be adjusted or the death of the surviving spouse or information as requested if the decedent eliminated as a result of the when the QDOT is terminated. had any other predeceased spouse examination; however, the IRS may only whose executor made the portability make an assessment of additional tax Note. If a surviving spouse who is not a election. Any remaining DSUE amount on the return of the predeceased citizen of the United States becomes a which was not used prior to the death of spouse within the applicable limitations citizen and the section 2056A tax no a subsequent spouse is not considered period under section 6501. longer applies to the assets of the in this calculation and cannot be applied Special Rule Where Value of QDOT, as of the date the surviving against any taxable transfer. In column E, total only the amounts of DSUE Certain Property Not Required spouse becomes a U.S. citizen, the DSUE amount is considered final and is received and used from spouses who To Be Reported on Form 706 available for application by the surviving died before the decedent’s last The regulations provide that executors spouse. See Regulations sections deceased spouse. Add this amount to of estates who are not otherwise 20.2010-2(c)(4), 20.2010-3(c)(3), and the amount from Part 1, column D, if required to file Form 706 under section 25.2505-2(d)(3). any, to determine the decedent’s total DSUE amount. 6018(a) do not have to report the value Check the appropriate box in this of certain property qualifying for the section and see the instructions for marital or charitable deduction. For such Schedule M if more information is Schedule A—Real Estate property, the executor may estimate the needed about QDOT. value in good faith and with the due If any assets to which the diligence to be afforded all assets Section C. DSUE Amount Portable to ! special rule of Regulations includible in the gross estate. The Decedent's Surviving Spouse. CAUTION section 20.2010-2(a)(7)(ii) amount reported on Form 706 will Complete Section C only if electing applies are reported on this schedule, correspond to a range of dollar values portability of the DSUE amount to the do not enter any value in the last three and will be included in the value of the surviving spouse. columns. See the instructions for line 10 gross estate shown on line 1 of Part On line 1, enter the decedent’s of Part 5—Recapitulation for information 2—Tax Computation. See the applicable exclusion amount from Part on how to estimate and report the value instructions for lines 10 and 23 of Part 2—Tax Computation, line 9d. The of these assets. 5—Recapitulation, earlier, for more applicable exclusion amount is the sum If the total gross estate contains any details. of the basic exclusion amount for the real estate, complete Schedule A and year of death, any DSUE amount Specific Instructions file it with the return. On Schedule A, list received from a predeceased spouse, if real estate the decedent owned or had Portability Election. If you intend to applicable, and any Restored Exclusion contracted to purchase. Number each elect portability of the DSUE amount, Amount. parcel in the left-hand column. timely filing a complete Form 706 is all Line 2 is reserved. that is required. Complete Section B if On line 3, enter the value of the Describe the real estate in enough any assets of the estate are being cumulative lifetime gifts on which gift tax detail so that the IRS can easily locate it transferred to a qualified domestic trust was paid or payable. This amount is for inspection and valuation. For each and complete Section C of this Part to figured on line 6 of the Line 7 parcel of real estate, report the area figure the DSUE amount that will be Worksheet, Part B, as the total of Row and, if the parcel is improved, describe transferred to the surviving spouse. (r) from the Line 7 Worksheet, Part A. the improvements. For city or town Section A. Opting Out of Portability. Enter the amount as it appears on line 6 property, report the street and number, If you are filing Form 706 and do not of the Line 7 Worksheet, Part B. ward, subdivision, block and lot, etc. For wish to elect portability, then check the rural property, report the township, Figure the unused exclusion amount range, landmarks, etc. box indicated. Do not complete on line 9. The DSUE amount available Section B or C. to the surviving spouse will be the lesser If any item of real estate is subject to Section B. Portability and Qualified of this amount or the basic exclusion a mortgage for which the decedent's Domestic Trusts (QDOTs). A QDOT amount shown on line 9a of Part 2—Tax estate is liable, that is, if the allows the estate of a decedent to Computation. Enter the DSUE amount indebtedness may be charged against bequeath property to a surviving spouse as determined on line 10. other property of the estate that is not who is not a citizen of the United States subject to that mortgage, or if the

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Schedule A—Example 1

In this example, alternate valuation is not adopted; the date of death is January 1, 2021. Item Description Alternate Alternate Value at number valuation value date of date death 1 House and lot, 1921 William Street NW, Washington, DC (lot 6, square 481). Rent of $8,100 due at the end of each quarter, February 1, May 1, August 1, and November 1. Value based on appraisal, copy of which is attached ...... $550,000 Rent due on item 1 for quarter ending November 1, 2020, but not collected at date of death ... 8,100 Rent accrued on item 1 for November and December 2020 ...... 5,400 2 House and lot, 304 Jefferson Street, Alexandria, VA (lot 18, square 40). Rent of $1,800 payable monthly. Value based on appraisal, copy of which is attached ...... 375,000 Rent due on item 2 for December 2020, but not collected at death ...... 1,800

Schedule A—Example 2

In this example, alternate valuation is adopted; the date of death is January 1, 2021. Item Description Alternate Alternate Value at number valuation value date of date death 1 House and lot, 1921 William Street NW, Washington, DC (lot 6, square 481). Rent of $8,100 due at the end of each quarter, February 1, May 1, August 1, and November 1. Value based on appraisal, copy of which is attached. Not disposed of within 6 months of date of death ...... 7/1/21 $535,000 $550,000 Rent due on item 1 for quarter ending November 1, 2020, but not collected until February 1, 2021 ...... 2/1/21 8,100 8,100 Rent accrued on item 1 for November and December 2020, collected on February 1, 2021 ... 2/1/21 5,400 5,400 2 House and lot, 304 Jefferson Street, Alexandria, VA (lot 18, square 40). Rent of $1,800 payable monthly. Value based on appraisal, copy of which is attached. Property exchanged for farm on May 1, 2021 ...... 5/1/21 369,000 375,000 Rent due on item 2 for December 2020, but not collected until February 1, 2021 ...... 2/1/21 1,800 1,800 decedent was personally liable for that Schedule A-1—Section • Check the box in Part 1. Type of mortgage, you must report the full value Election. of the property in the value column. 2032A Valuation • Enter the decedent's name and SSN Enter the amount of the mortgage under The election to value certain farm and in the spaces provided at the top of “Description” on this schedule. The closely held business property at its Schedule A-1. unpaid amount of the mortgage may be special-use value is made by checking • Complete Part 2. Notice of Election, deducted on Schedule K. “Yes” on Form 706, Part 3—Elections by line 1, and column A for lines 3 and 4. the Executor, line 2. Schedule A-1 is If the decedent’s estate is not liable used to report the additional information For purposes of the protective for the amount of the mortgage, report that must be submitted to support this election, list on line 3 all of the real only the value of the equity of election. In order to make a valid property that passes to the qualified redemption (or value of the property election, you must complete heirs even though some of the property less the indebtedness) in the value Schedule A-1 and attach all of the will be shown on line 2 when the column as part of the gross estate. Do required statements and appraisals. additional notice of election is not enter any amount less than zero. Do subsequently filed. not deduct the amount of indebtedness For definitions and additional You don’t need to complete columns on Schedule K. information concerning special-use B through D of lines 3 and 4 or any other valuation, see section 2032A and the line entries on Schedule A-1. Also list on Schedule A real property related regulations. the decedent contracted to purchase. Completing Schedule A-1 as Report the full value of the property and Part 1. Type of Election described above constitutes a Notice of not the equity in the value column. Protective Election as described in Estate and GST tax elections. If you Regulations section 20.2032A-8(b). Deduct the unpaid part of the purchase elect special-use valuation for the estate price on Schedule K. tax, you must also elect special-use Part 2. Notice of Election Report the value of real estate valuation for the GST tax and vice versa. Line 10. Because the special-use without reducing it for homestead or valuation election creates a potential tax other exemption, or the value of dower, Protective election. To make the liability for the recapture tax of section curtesy, or a statutory estate created protective election described in the 2032A(c), you must list each person instead of dower or curtesy. separate instructions for Part who receives an interest in the specially Explain how the reported values 3—Elections by the Executor, line 2, valued property on Schedule A-1. If were determined and attach copies of you must complete the following. there are more than eight persons who any appraisals. receive interests, use an additional

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sheet that follows the format of line 10. taxes and charges to increase, enter the before the election under section 2032A In the columns “Fair market value” and increased amount (only) on these lines is timely exercised, a representative “Special-use value,” enter the total and attach an explanation of the authorized by local law to bind the respective values of all the specially increase. Otherwise, enter -0-. person in an agreement of this nature valued property interests received by • Schedule R, Parts 2 and 3, may sign the agreement on his or her each person. line 6—GST exemption allocation. If you behalf. completed Schedule R, Part 1, line 10, GST Tax Savings enter on line 6 the amount shown for the The IRS will contact the agent To figure the additional GST tax due skip person on the line 10 special-use designated in the agreement on all upon disposition (or cessation of allocation schedule you attached to matters relating to continued qualified use) of the property, each “skip Schedule R. If you did not complete qualification under section 2032A of the person” (as defined in the instructions Schedule R, Part 1, line 10, enter -0- on specially valued real property and on all for Schedule R) who receives an line 6. matters relating to the special lien interest in the specially valued property arising under section 6324B. It is the must know the total GST tax savings all Total GST tax savings. For each skip duty of the agent as attorney-in-fact for interests in specially valued property person, subtract the tax amount on the parties with interests in the specially received. The GST tax savings is the line 10, Part 2, of the special-use value valued property to furnish the IRS with difference between the total GST tax worksheet from the tax amount on any requested information and to notify that was imposed on all interests in line 10, Part 2, of the fair market value the IRS of any disposition or cessation specially valued property received by worksheet. This difference is the skip of qualified use of any part of the the skip person valued at their person's total GST tax savings. property. special-use value and the total GST tax Part 3. Agreement to Special Checklist for Section 2032A that would have been imposed on the Valuation Under Section 2032A Election same interests received by the skip person had they been valued at their The agreement to special valuation is When making the special-use FMV. required under sections 2032A(a)(1)(B) valuation election on and (d)(2) and must be signed by all ! CAUTION Schedule A-1, please use this Because the GST tax depends on parties who have any interest in the checklist to ensure that you are the executor's allocation of the GST property being valued based on its providing everything necessary to make exemption and the grandchild qualified use as of the date of the a valid election. exclusion, the skip person who receives decedent's death. the interests is unable to figure this GST To have a valid special-use valuation An interest in property is an interest tax savings. Therefore, for each skip election under section 2032A, you must that, as of the date of the decedent's person who receives an interest in file, in addition to the federal estate tax death, can be asserted under applicable specially valued property, you must return, (a) a notice of election law so as to affect the disposition of the attach a calculation of the total GST tax (Schedule A-1, Part 2), and (b) a fully specially valued property by the estate. savings attributable to that person's executed agreement (Schedule A-1, Any person who at the decedent's death interests in specially valued property. Part 3). You must include certain has any such interest in the property, information in the notice of election. To How to figure the GST tax savings. whether present, future, vested, or ensure that the notice of election Before figuring each skip person's GST contingent, must enter into the includes all of the information required tax savings, complete Schedules R and agreement. Included are owners of for a valid election, use the following R-1 for the entire estate (using the remainder and executory interests; the checklist. The checklist is for your use special-use values). holders of general or special powers of only. Do not file it with the return. For each skip person, complete two appointment; beneficiaries of a gift over Schedules R (Parts 2 and 3 only) as in default of exercise of any such power; worksheets, one showing the interests joint tenants and holders of similar Does the notice of election undivided interests when the decedent in specially valued property received by include the decedent's name and held only a joint or undivided interest in the skip person at their special-use SSN as they appear on the value and one showing the same the property or when only an undivided estate tax return? interests at their FMV. interest is specially valued; and trustees of trusts and representatives of other If the skip person received interests entities holding title to or any interests in Does the notice of election in specially valued property that were the property. An heir who has the power shown on Schedule R-1, show these include the relevant qualified use under local law to challenge a will and interests on the Schedule R, Parts 2 and of the property to be specially thereby affect disposition of the property 3 worksheets, as appropriate. Do not valued? is not, however, considered to be a use Schedule R-1 as a worksheet. person with an interest in property under Does the notice of election Completing the special-use value section 2032A solely by reason of that worksheets. On Schedule R, Parts 2 right. Likewise, creditors of an estate describe the items of real and 3, lines 2 through 4 and 6, enter -0-. are not such persons solely by reason of property shown on the estate tax return that are to be specially Completing the fair market value their status as creditors. worksheets. valued and identify the property If any person required to enter into by the Form 706 schedule and • Schedule R, Parts 2 and 3, lines 2 the agreement either desires that an and 3, fixed taxes and other charges. If agent act for him or her or cannot legally item number? valuing the interests at FMV (instead of bind himself or herself due to infancy or special-use value) causes any of these other incompetency, or due to death

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Does the notice of election Does the notice of election Has the agreement been signed include the FMV of the real include a statement as to by each qualified heir having an property to be specially valued whether there were any periods interest in the property being and also include its value based during the 8-year period specially valued? on the qualified use (determined preceding the decedent's date of without the adjustments provided death during which the decedent Has every qualified heir in section 2032A(b)(3)(B))? or a member of his or her family expressed consent to personal did not (a) own the property to be liability under section 2032A(c) Does the notice of election specially valued, (b) use it in a in the event of an early include the adjusted value (as qualified use, or (c) materially disposition or early cessation of defined in section 2032A(b)(3) participate in the operation of the qualified use? (B)) of (a) all real property that farm or other business? (See both passes from the decedent section 2032A(e)(6).) Is the agreement that is actually and is used in a qualified use, signed by the qualified heirs in a without regard to whether it is to Does the notice of election form that is binding on all of the be specially valued; and (b) all include, for each item of specially qualified heirs having an interest real property to be specially valued property, the name of in the specially valued property? valued? every person who has an interest in that item of specially valued Does the agreement designate Does the notice of election property and the following an agent to act for the parties to include (a) the items of personal information about each such the agreement in all dealings property shown on the estate tax person: (a) the person's address, with the IRS on matters arising return that pass from the (b) the person's TIN, (c) the under section 2032A? decedent to a qualified heir, and person's relationship to the that are used in qualified use; decedent, and (d) the value of Has the agreement been signed and (b) the total value of such the property interest passing to by the designated agent and personal property adjusted under that person based on both FMV does it give the address of the section 2032A(b)(3)(B)? and qualified use? agent?

Does the notice of election Does the notice of election include the adjusted value of the include affidavits describing the gross estate? (See section activities constituting material Schedule B—Stocks and 2032A(b)(3)(A).) participation and the identities of the material participants? Bonds Does the notice of election If any assets to which the include the method used to Does the notice of election ! special rule of Regulations determine the special-use value? include a legal description of CAUTION section 20.2010-2(a)(7)(ii) each item of specially valued applies are reported on this schedule, Does the notice of election property? do not enter any value in the last three Note. The legal description must columns. See the instructions for line 10 include copies of written of Part 5—Recapitulation for information be the complete legal description appraisals of the FMV of the real on how to estimate and report the value property? of the property. An abbreviated of these assets. description is not sufficient. Does the notice of election Before completing Schedule B, include a statement that the (In the case of an election made for TIP see the examples illustrating the decedent and/or a member of his qualified woodlands, the information alternate valuation dates being or her family has owned all of the included in the notice of election adopted and not being adopted, later. specially valued property for at must include the reason for If the total gross estate contains any least 5 years of the 8 years entitlement to the woodlands stocks or bonds, you must complete immediately preceding the date election.) Schedule B and file it with the return. of the decedent's death? On Schedule B, list the stocks and bonds included in the decedent's gross Any election made under section estate. Number each item in the 2032A will not be valid unless a properly left-hand column. executed agreement (Schedule A-1, Part 3) is filed with the estate tax return. Note. Unless specifically exempted by To ensure that the agreement satisfies an estate tax provision of the Code, the requirements for a valid election, bonds that are exempt from federal use the following checklist. The income tax are not exempt from estate checklist is for your use only. Do not file tax. You should list these bonds on it with the return. Schedule B.

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Schedule B Examples

Example showing use of Schedule B where the alternate valuation is not adopted; date of death, January 1, 2021. Item Description, including face amount of bonds or number of shares and par Unit value Alternate Alternate Value at number value where needed for identification. Give CUSIP number. If trust, partnership, valuation value date of or closely held entity, give EIN. date death CUSIP number or EIN, where applicable 1 $60,000—Arkansas Railroad Co. first mortgage 4%, 20-year bonds, due 2022. Interest payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1; N.Y. Exchange ...... XXXXXXXXX 100 ------$------$ 60,000 Interest coupons attached to bonds, item 1, due and payable on Nov. 1, 2020, but not cashed at date of death ...... ------600 Interest accrued on item 1, from Nov. 1, 2020, to Jan. 1, 2021 ...... ------400

2 500 shares Public Service Corp., common; N.Y. Exchange .. XXXXXXXXX 110 ------55,000 Dividend on item 2 of $2 per share declared Dec. 10, 2020, payable on Jan. 9, 2021, to holders of record on Dec. 30, 2020 ...... ------1,000

Example showing use of Schedule B where the alternate valuation is adopted; date of death, January 1, 2021. Item Description, including face amount of bonds or number of shares and par value Unit value Alternate Alternate Value at number where needed for identification. Give CUSIP number. If trust, partnership, or valuation value date of closely held entity, give EIN. date death CUSIP number or EIN, where applicable 1 $60,000—Arkansas Railroad Co. first mortgage 4%, 20-year bonds, due 2022. Interest payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1; N.Y. Exchange ...... XXXXXXXXX 100 ------$------$ 60,000

$30,000 of item 1 distributed to legatees on Apr. 1, 2021 .... 99 4/1/21 29,700 ------

$30,000 of item 1 sold by executor on May 1, 2021 ...... 98 5/1/21 29,400 ------Interest coupons attached to bonds, item 1, due and payable on Nov. 1, 2020, but not cashed at date of death. Cashed by executor on Feb. 2, 2021 ...... ------2/2/21 600 600 Interest accrued on item 1, from Nov. 1, 2020, to Jan. 1, 2021. Cashed by executor on Feb. 2, 2021 ...... ------2/2/21 400 400

2 500 shares Public Service Corp., common; N.Y. Exchange .. XXXXXXXXX 110 ------55,000

Not disposed of within 6 months following death ...... 90 7/1/21 45,000 ------Dividend on item 2 of $2 per share declared Dec. 10, 2020, paid on Jan. 9, 2021, to holders of record on Dec. 30, 2020 ..... ------1/9/21 1,000 1,000

Public housing bonds includible in death. However, if the stock is being Description the gross estate must be included at traded on an exchange and is selling their full value. ex-dividend on the date of the Stocks. For stocks, indicate: decedent's death, do not include the • Number of shares; If you paid any estate, inheritance, • Whether common or preferred; legacy, or succession tax to a foreign amount of the dividend as a separate item. Instead, add it to the ex-dividend • Issue; country on any stocks or bonds included • Par value where needed for in this schedule, group those stocks and quotation in determining the FMV of the stock on the date of the decedent's identification; bonds together and label them • Price per share; “Subjected to Foreign Death Taxes.” death. Dividends declared on shares of stock before the death of the decedent • Exact name of corporation; List interest and dividends on each but payable to stockholders of record on • Principal exchange upon which sold, stock or bond on a separate line. a date after the decedent's death are if listed on an exchange; and Nine-digit CUSIP number (defined Indicate as a separate item dividends not includible in the gross estate for • later). that have not been collected at death federal estate tax purposes and should and are payable to the decedent or the not be listed here. Bonds. For bonds, indicate: estate because the decedent was a • Quantity and denomination; stockholder of record on the date of • Name of obligor;

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• Date of maturity; asked prices are available within a • Interest rate; reasonable period of time before the Schedule C—Mortgages, • Interest due date; valuation date but not after the valuation Notes, and Cash • Principal exchange, if listed on an date, or vice versa, use the mean exchange; and between the highest and lowest sales If any assets to which the • Nine-digit CUSIP number. prices or bid and asked prices as the ! special rule of Regulations CAUTION section 20.2010-2(a)(7)(ii) If the stock or bond is unlisted, show the FMV. applies are reported on this schedule, company's principal business office. For example, assume that sales of do not enter any value in the last three If the gross estate includes any stock nearest the valuation date (June columns. See the instructions for line 10 interest in a trust, partnership, or closely 15) occurred 2 trading days before of Part 5—Recapitulation for information held entity, provide the EIN of the entity (June 13) and 3 trading days after (June on how to estimate and report the value in the description column on Schedules 18). On those days, the mean sale of these assets. B, E, F, G, M, and O. You must also prices per share were $10 and $15, provide the EIN of an estate (if any) in respectively. Therefore, the price of $12 Complete Schedule C and file it with the description column on the is considered the FMV of a share of your return if the total gross estate above-noted schedules, where stock on the valuation date. If, however, contains any: applicable. on June 13 and 18, the mean sale • Mortgages, prices per share were $15 and $10, • Notes, or CUSIP number. The CUSIP respectively, the FMV of a share of • Cash. (Committee on Uniform Security stock on the valuation date is $13. Identification Procedures) number is a List on Schedule C: nine-digit number that is assigned to all If only closing prices for bonds are • Mortgages and notes payable to the stocks and bonds traded on major available, see Regulations section decedent at the time of death, and exchanges and many unlisted 20.2031-2(b). • Cash the decedent had at the date of securities. Usually, the CUSIP number death. is printed on the face of the stock Apply the rules in the section 2031 certificate. If you do not have a stock regulations to determine the value of Note. Do not list mortgages and notes certificate, the CUSIP may be found on inactive stock and stock in close payable by the decedent on the broker's or custodian's statement or corporations. Attach to Schedule B Schedule C. (If these are deductible, list by contacting the company's transfer complete financial and other data used them on Schedule K.) to determine value, including balance agent. Schedule C reporting order. List the sheets (particularly the one nearest to items on Schedule C in the following the valuation date) and statements of Valuation order. List the FMV of the stocks or bonds. The the net earnings or operating results and 1. Mortgages. FMV of a stock or bond (whether listed dividends paid for each of the 5 years or unlisted) is the mean between the immediately before the valuation date. 2. Promissory notes. highest and lowest selling prices quoted Securities reported as of no value, of 3. Contracts by decedent to sell on the valuation date. If only the closing nominal value, or obsolete should be land. selling prices are available, then the listed last. Include the address of the 4. Cash in possession. FMV is the mean between the quoted company and the state and date of 5. Cash in banks, savings and loan closing selling price on the valuation incorporation. Attach copies of date and on the trading day before the associations, and other types of correspondence or statements used to financial organizations. valuation date. determine the “no value.” Description If there were no sales on the If the security was listed on more valuation date, figure the FMV as than one stock exchange, use either the Mortgages. For mortgages, list: follows. records of the exchange where the • Face value, 1. Find the mean between the security is principally traded or the • Unpaid balance, highest and lowest selling prices on the composite listing of combined • Date of mortgage, nearest trading date before and the exchanges, if available, in a publication • Name of maker, nearest trading date after the valuation of general circulation. In valuing listed • Property mortgaged, date. Both trading dates must be stocks and bonds, you should carefully • Date of maturity, reasonably close to the valuation date. check accurate records to obtain values • Interest rate, and 2. Prorate the difference between for the applicable valuation date. • Interest date. the mean prices to the valuation date. If you get quotations from brokers, or Mortgage description example. 3. Add or subtract (whichever evidence of the sale of securities from “Bond and mortgage of $50,000, unpaid applies) the prorated part of the the officers of the issuing companies, balance: $17,000; dated: January 1, difference to or from the mean price attach to the schedule copies of the 1992; John Doe to Richard Roe; figured for the nearest trading date letters furnishing these quotations or premises: 22 Clinton Street, Newark, before the valuation date. evidence of sale. NJ; due: January 1, 2021; interest If no actual sales were made payable at 10% a year—January 1 and reasonably close to the valuation date, July 1.” make the same computation using the Promissory notes. For promissory mean between the bona fide bid and notes, list in the same way as asked prices instead of sales prices. If mortgages. actual sales prices or bona fide bid and

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Contracts by the decedent to sell paid under no-fault automobile section 2036, 2037, or 2038. See the land. For contracts by the decedent to insurance policies if the no-fault insurer instructions for Schedule G for a sell land, list: was unconditionally bound to pay the description of these sections. benefit in the event of the insured's • Name of purchaser, Completing the Schedule • Contract date, death. You must list every insurance policy on • Property description, Insurance in favor of the estate. • Sale price, the life of the decedent, whether or not it Include on Schedule D the full amount is included in the gross estate. • Initial payment, of the proceeds of insurance on the life • Amounts of installment payment, of the decedent receivable by the Under “Description,” list: • Unpaid balance of principal, and executor or otherwise payable to or for • The name of the insurance company, • Interest rate. the benefit of the estate. Insurance in and The number of the policy. Cash in possession. For cash on favor of the estate includes insurance • hand, list such cash separately from used to pay the estate tax, and any For every life insurance policy listed bank deposits. other taxes, debts, or charges that are on the schedule, request a statement on enforceable against the estate. The Form 712 from the company that issued Cash in financial organizations. For manner in which the policy is drawn is the policy. Attach the Form 712 to cash in banks, savings and loan immaterial as long as there is an Schedule D. associations, and other types of obligation, legally binding on the financial organizations, list: beneficiary, to use the proceeds to pay Note. If the insurance company that • Name and address of each financial taxes, debts, or charges. You must issued the policy will not provide Form organization; include the full amount even though the 712, you should attach evidence that • Amount in each account; premiums or other consideration may verifies the amount includible on • Serial or account number; have been paid by a person other than Schedule D, including but not limited to • Nature of account—checking, the decedent. an attachment, rider, assignment, copy savings, time deposit, etc.; and Insurance receivable by beneficia- of insurance proceeds check, and other • Unpaid interest accrued from date of relevant material. last interest payment to the date of ries other than the estate. Include on death. Schedule D the proceeds of all If the policy proceeds are paid in one insurance on the life of the decedent not sum, enter the net proceeds received Note. If you obtain statements from the receivable by, or for the benefit of, the (from Form 712, line 24) in the value financial organizations, keep them for decedent's estate if the decedent (and alternate value) columns of IRS inspection. possessed at death any of the following Schedule D. If the policy proceeds are incidents of ownership, exercisable not paid in one sum, enter the value of either alone or in conjunction with any the proceeds as of the date of the Schedule D—Insurance on person or entity. decedent's death (from Form 712, the Decedent's Life Incidents of ownership in a policy line 25). If any assets to which the include the following. If part or all of the policy proceeds special rule of Regulations • The right of the insured or estate to its are not included in the gross estate, ! economic benefits. CAUTION section 20.2010-2(a)(7)(ii) explain why they were not included. applies are reported on this schedule, • The power to change the beneficiary. • The power to surrender or cancel the do not enter any value in the last three Schedule E—Jointly columns. See the instructions for line 10 policy. of Part 5—Recapitulation for information • The power to assign the policy or to Owned Property revoke an assignment. on how to estimate and report the value If any assets to which the of these assets. • The power to pledge the policy for a loan. special rule of Regulations If you are required to file Form 706 • The power to obtain from the insurer section 20.2010-2(a)(7)(ii) and there was any insurance on the a loan against the surrender value of the applies are reported on this schedule, decedent's life, whether or not included policy. do not enter any value in the last three in the gross estate, you must complete • A reversionary interest if the value of columns. See the instructions for line 10 Schedule D and file it with the return. the reversionary interest was more than of Part 5—Recapitulation for information 5% of the value of the policy on how to estimate and report the value Insurance you must include on of these assets. Schedule D. Under section 2042, you immediately before the decedent died. must include in the gross estate: (An interest in an insurance policy is If you are required to file Form 706, • Insurance on the decedent's life considered a reversionary interest if, for complete Schedule E and file it with the receivable by or for the benefit of the example, the proceeds become payable return if the decedent owned any joint estate; and to the insured's estate or payable as the property at the time of death, whether or • Insurance on the decedent's life insured directs if the beneficiary dies not the decedent's interest is includible receivable by beneficiaries other than before the insured.) in the gross estate. the estate, as described below. Life insurance not includible in the Enter on this schedule all property of The term “insurance” refers to life gross estate under section 2042 may be whatever kind or character, whether real insurance of every description, including includible under some other section of estate, personal property, or bank death benefits paid by fraternal the Code. For example, a life insurance accounts, in which the decedent held at beneficiary societies operating under policy could be transferred by the the time of death an interest either as a the lodge system, and death benefits decedent in such a way that it would be joint tenant with right to survivorship or includible in the gross estate under as a tenant by the entirety.

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Do not list on this schedule property gross estate. However, the full value list all items that must be included in the that the decedent held as a tenant in should not be included if you can show gross estate that are not reported on common, but report the value of the that a part of the property originally any other schedule, including: interest on Schedule A if real estate, or belonged to the other tenant or tenants • Debts due the decedent (other than on the appropriate schedule if personal and was never received or acquired by notes and mortgages included on property. Similarly, community property the other tenant or tenants from the Schedule C); held by the decedent and spouse decedent for less than adequate and full • Interests in business; should be reported on the appropriate consideration in money or money's • Any interest in an Archer medical Schedules A through I. The decedent's worth. Full value of jointly owned savings account (MSA) or health interest in a partnership should not be property also does not have to be savings account (HSA), unless such entered on this schedule unless the included in the gross estate if you can interest passes to the surviving spouse; partnership interest itself is jointly show that any part of the property was • Insurance on the life of another owned. Solely owned partnership acquired with consideration originally (obtain and attach Form 712, for each interests should be reported on belonging to the surviving joint tenant or policy) (see Note below); Schedule F. tenants. In this case, you may exclude • Section 2044 property (see Decedent from the value of the property an Who Was a Surviving Spouse, later); Part 1. Qualified joint interests held amount proportionate to the Claims (including the value of the by decedent and spouse. Under • consideration furnished by the other decedent's interest in a claim for refund section 2040(b)(2), a joint interest is a tenant or tenants. Relinquishing or of income taxes or the amount of the qualified joint interest if the decedent promising to relinquish dower, curtesy, refund actually received); and the surviving spouse held the or statutory estate created instead of Rights; interest as: • dower or curtesy, or other marital rights Royalties; • Tenants by the entirety, or • in the decedent's property or estate is Leaseholds; • Joint tenants with right of survivorship • not consideration in money or money's Judgments; if the decedent and the decedent's • worth. See the Schedule A instructions Reversionary or remainder interests; spouse are the only joint tenants. • for the value to show for real property • Shares in trust funds (attach a copy of Interests that meet either of the two that is subject to a mortgage. the trust instrument); requirements above should be entered If the property was acquired by the • Household goods and personal in Part 1. Joint interests that do not meet decedent and another person or effects, including wearing apparel; either of the two requirements above persons by gift, bequest, devise, or • Farm products and growing crops; should be entered in Part 2. inheritance as joint tenants, and their • Livestock; Under “Description,” describe the interests are not otherwise specified by • Farm machinery; and property as required in the instructions law, include only that part of the value of • Automobiles. for Schedules A, B, C, and F for the type the property that is figured by dividing of property involved. For example, the full value of the property by the Note (for single premium or paid-up jointly held stocks and bonds should be number of joint tenants. policies). In certain situations (for described using the rules given in the example, where the surrender value of If you believe that less than the full instructions for Schedule B. the policy exceeds its replacement value of the entire property is includible cost), the true economic value of the Under “Alternate value” and “Value at in the gross estate for tax purposes, you policy will be greater than the amount date of death,” enter the full value of the must establish the right to include the shown on line 59 of Form 712. In these property. smaller value by attaching proof of the situations, report the full economic value extent, origin, and nature of the Note. You cannot claim the special of the policy on Schedule F. See Rev. decedent's interest and the interest(s) of Rul. 78-137, 1978-1 C.B. 280, for treatment under section 2040(b) for the decedent's co-tenant or co-tenants. property held jointly by a decedent and details. In the “Includible alternate value” and a surviving spouse who is not a U.S. Interests. If the decedent owned any “Includible value at date of death” citizen. Report these joint interests on interest in a partnership or columns, enter only the values that you Part 2 of Schedule E, not Part 1. unincorporated business, attach a believe are includible in the gross statement of assets and liabilities for the Part 2. All other joint interests. All estate. joint interests that were not entered in valuation date and for the 5 years before Part 1 must be entered in Part 2. the valuation date. Also, attach Schedule F—Other statements of the net earnings for the For each item of property, enter the same 5 years. Be sure to include the appropriate letter A, B, C, etc., from Miscellaneous Property EIN of the entity. You must account for line 2a to indicate the name and If any assets to which the goodwill in the valuation. In general, address of the surviving co-tenant. ! special rule of Regulations furnish the same information and follow Under “Description,” describe the CAUTION section 20.2010-2(a)(7)(ii) the methods used to value close property as required in the instructions applies are reported on this schedule, corporations. See the instructions for for Schedules A, B, C, and F for the type do not enter any value in the last three Schedule B. of property involved. columns. See the instructions for line 10 All partnership interests should be In the “Percentage includible” of Part 5—Recapitulation for information reported on Schedule F unless the column, enter the percentage of the on how to estimate and report the value partnership interest is jointly owned. total value of the property included in of these assets. Jointly owned partnership interests the gross estate. should be reported on Schedule E. Generally, you must include the full You must complete Schedule F and value of the jointly owned property in the file it with the return. On Schedule F,

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If real estate is owned by a sole Decedent Who Was a Surviving IF. . . AND . . . THEN . . . proprietorship, it should be reported on Spouse Schedule F and not on Schedule A. the decedent at the time of for purposes Describe the real estate with the same If the decedent was a surviving spouse, made a the transfer, of sections detail required for Schedule A. he or she may have received qualified transfer from a the transfer 2035 and terminable interest property (QTIP) from trust was from a 2038, treat the Valuation discounts. If you the predeceased spouse for which the portion of the transfer as answered “Yes” to Part 4—General marital deduction was elected either on trust that was made directly Information, line 11b, for any interest in the predeceased spouse's estate tax owned by the by the a partnership, an unincorporated return or on a gift tax return, Form 709. grantor under decedent. Any business, an LLC, or stock in a closely The election is available for transfers section 676 such transfer held corporation, attach a statement (other than by within the made and decedents dying after reason of annual gift tax that lists the item number from December 31, 1981. List such property section exclusion is Schedule F and identifies the total on Schedule F. 672(e)) by not includible effective discount taken (that is, XX.XX reason of a in the gross If this election was made and the %) on such interest. power in the estate. surviving spouse retained his or her grantor interest in the QTIP property at death, Example of effective discount: the full value of the QTIP property is includible in his or her estate, even 1. Certain gift taxes (section a Pro-rata value of LLC (before any though the qualifying income interest 2035(b)). Enter on item A of discounts) $100.00 terminated at death. It is valued as of Schedule G the total value of the gift the date of the surviving spouse's death, b Minus: 10% discounts for lack of taxes that were paid by the decedent or control (10.00) or alternate valuation date, if applicable. the estate on gifts made by the Do not reduce the value by any annual c Marketable minority interest value decedent or the decedent's spouse exclusion that may have applied to the (as if freely traded minority interest within 3 years of death. value) $90.00 transfer creating the interest. The date of the gift, not the date of d Minus: 15% discount for lack of The value of such property included payment of the gift tax, determines marketability (13.50) in the surviving spouse's gross estate is whether a gift tax paid is included in the e Nonmarketable minority interest treated as passing from the surviving gross estate under this rule. Therefore, value $76.50 spouse. It therefore qualifies for the you should carefully examine the Forms charitable and marital deductions on the 709 filed by the decedent and the surviving spouse's estate tax return if it Calculation of effective discount: decedent's spouse to determine what meets the other requirements for those part of the total gift taxes reported on deductions. them was attributable to gifts made (a minus e) divided by a = effective discount For additional details, see within 3 years of death. ($100.00 - $76.50) ÷ $100.00 = 23.50% Regulations section 20.2044-1. For example, if the decedent died on July 10, 2021, you should examine gift Note. The amount of discounts is tax returns for 2021, 2020, 2019, and based on the factors pertaining to a Schedule G—Transfers 2018. However, the gift taxes on the specific interest and those discounts During Decedent's Life 2018 return that are attributable to gifts shown in the example are for made on or before July 10, 2018, are demonstration purposes only. If any assets to which the not included in the gross estate. If you answered “Yes” to line 11b for ! special rule of Regulations CAUTION section 20.2010-2(a)(7)(ii) Explain how you figured the any transfer(s) described in (1) through includible gift taxes if the entire gift taxes (5) in the Schedule G instructions (and applies are reported on this schedule, do not enter any value in the last three shown on any Form 709 filed for gifts made by the decedent), attach a made within 3 years of death are not statement to Schedule G which lists columns. See the instructions for line 10 of Part 5—Recapitulation for information included in the gross estate. Also attach the item number from that schedule and copies of any relevant gift tax returns identifies the total effective discount on how to estimate and report the value of these assets. filed by the decedent's spouse, with taken (that is, XX.XX%) on such "Exhibit to Estate Tax Return" entered transfer(s). Complete Schedule G and file it with across the top of the first page of each, Line 1. If the decedent owned at the the return if the decedent made any of for gifts made within 3 years of death. date of death works of art or items with the transfers described in (1) through (5) 2. Other transfers within 3 years collectible value (for example, jewelry, later, or if you answered “Yes” to of death (section 2035(a)). These furs, silverware, books, statuary, vases, question 12 or 13a of Part 4—General transfers include only the following. oriental rugs, coin or stamp collections), Information. • Any transfer by the decedent with check the “Yes” box on line 1 and Report the following types of respect to a life insurance policy within 3 provide full details. If any item or transfers on this schedule. years of death. collection of similar items is valued at • Any transfer within 3 years of death of more than $3,000, attach an appraisal a retained section 2036 life estate, by an expert under oath and the section 2037 reversionary interest, or required statement regarding the section 2038 power to revoke, etc., if appraiser's qualifications (see the property subject to the life estate, Regulations section 20.2031-6(b)). interest, or power would have been included in the gross estate had the

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decedent continued to possess the life considered to have retained enjoyment that the income alone from the property estate, interest, or power until death. of the transferred property. A may return to the decedent or become These transfers are reported on corporation is a controlled corporation if subject to the decedent's power of Schedule G, regardless of whether a gift the decedent owned (actually or disposition. tax return was required to be filed for constructively) or had the right (either 5. Revocable transfers (section them when they were made. However, alone or with any other person) to vote 2038). The gross estate includes the the amount includible and the at least 20% of the total combined value of any transferred property which information required to be shown for the voting power of all classes of stock. See was subject to the decedent's power to transfers are determined: section 2036(b)(2). If these voting rights alter, amend, revoke, or terminate the • For insurance on the life of the ceased or were relinquished within 3 transfer at the time of the decedent's decedent using the instructions for years of the decedent's death, the death. A decedent's power to change Schedule D (attach Form 712); corporate interests are included in the beneficiaries and to increase any • For insurance on the life of another gross estate as if the decedent had beneficiary's enjoyment of the property using the instructions for Schedule F actually retained the voting rights until are examples of this. death. (attach Form 712); and It does not matter whether the power • For sections 2036, 2037, and 2038 The amount includible in the gross was reserved at the time of the transfer, transfers, using paragraphs (3), (4), and estate is the value of the transferred whether it arose by operation of law, or (5) of these instructions. property at the time of the decedent's whether it was later created or 3. Transfers with retained life death. If the decedent kept or reserved conferred. The rule applies regardless estate (section 2036). These are an interest or right to only a part of the of the source from which the power was transfers by the decedent in which the transferred property, the amount acquired, and regardless of whether the decedent retained an interest in the includible in the gross estate is a power was exercisable by the decedent transferred property. The transfer can corresponding part of the entire value of alone or with any person (and be in trust or otherwise, but excludes the property. regardless of whether that person had a bona fide sales for adequate and full A retained life estate does not have substantial adverse interest in the consideration. to be legally enforceable. What matters transferred property). Interests or rights. Section 2036 is that a substantial economic benefit The capacity in which the decedent applies to the following retained was retained. For example, if a mother could use a power has no bearing. If the interests or rights. transferred title to her home to her decedent gave property in trust and was • The right to income from the daughter but with the informal the trustee with the power to revoke the transferred property. understanding that she was to continue trust, the property would be included in • The right to the possession or living there until her death, the value of his or her gross estate. For transfers or enjoyment of the property. the home would be includible in the additions to an irrevocable trust after • The right, either alone or with any mother's estate even if the agreement October 28, 1979, the transferred person, to designate the persons who would not have been legally property is includible if the decedent shall receive the income from, possess, enforceable. reserved the power to remove the or enjoy, the property. 4. Transfers taking effect at trustee at will and appoint another Retained annuity, unitrust, and death (section 2037). A transfer that trustee. other income interests in trusts. If a takes effect at the decedent's death is If the decedent relinquished within 3 decedent transferred property into a one under which possession or years of death any of the includible trust and retained or reserved the right enjoyment can be obtained only by powers described above, figure the to use the property, or the right to an surviving the decedent. A transfer is not gross estate as if the decedent had annuity, unitrust, or other interest in treated as one that takes effect at the actually retained the powers until death. such trust for the property for the decedent's death unless the decedent retained a reversionary interest (defined Only the part of the transferred decedent's life, any period not property that is subject to the ascertainable without reference to the later) in the property that immediately before the decedent's death had a value decedent's power is included in the decedent's death, or for a period that gross estate. does not, in fact, end before the of more than 5% of the value of the decedent's death, then the decedent's transferred property. If the transfer was For more detailed information on right to use the property or the retained made before October 8, 1949, the which transfers are includible in the annuity, unitrust, or other interest reversionary interest must have arisen gross estate, see Regulations section (whether payable from income and/or by the express terms of the instrument 20.2038-1. principal) is the retention of the of transfer. Special Valuation Rules for possession or enjoyment of, or the right A reversionary interest is, generally, Certain Lifetime Transfers to the income from, the property for any right under which the transferred purposes of section 2036. See property will or may be returned to the Sections 2701 through 2704 provide Regulations section 20.2036-1(c)(2). decedent or the decedent's estate. It rules for valuing certain transfers to family members. Retained voting rights. Transfers also includes the possibility that the with a retained life estate also include transferred property may become Section 2701 deals with the transfer transfers of stock in a controlled subject to a power of disposition by the of an interest in a corporation or corporation made after June 22, 1976, if decedent. It does not matter if the right partnership while retaining certain the decedent retained or acquired arises by the express terms of the distribution rights, or a liquidation, put, voting rights in the stock. If the decedent instrument of transfer or by operation of call, or conversion right. retained direct or indirect voting rights in law. For this purpose, reversionary interest does not include the possibility Section 2702 deals with the transfer a controlled corporation, the decedent is of an interest in a trust while retaining

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any interest other than a qualified property should be included in the value $5,000 or 5% of the total value, at the interest. In general, a qualified interest is of the gross estate. If the transferee time of the lapse, of the assets out of a right to receive certain distributions makes additions or improvements to the which, or the proceeds of which, the from the trust at least annually, or a property, the increased value of the exercise of the lapsed power could have noncontingent remainder interest if all of property at the valuation date should not been satisfied. the other interests in the trust are be included on Schedule G. However, if distribution rights specified in section only a part of the value of the property is Powers of Appointment 2702. included, enter the value of the whole A power of appointment determines under the column headed “Description” who will own or enjoy the property Section 2703 provides rules for the and explain what part was included. subject to the power and when they will valuation of property transferred to a own or enjoy it. The power must be family member but subject to an option, Attachments. If a transfer, by trust or created by someone other than the agreement, or other right to acquire or otherwise, was made by a written decedent. It does not include a power use the property at less than FMV. It instrument, attach a copy of the created or held on property transferred also applies to transfers subject to instrument to Schedule G. If the copy of by the decedent. restrictions on the right to sell or use the the instrument is of public record, it property. should be certified; if not of public A power of appointment includes all record, the copy should be verified. Finally, section 2704 provides that in powers which are, in substance and certain cases, the lapse of a voting or effect, powers of appointment liquidation right in a family-owned Schedule H—Powers of regardless of how they are identified corporation or partnership will result in a and regardless of local property laws. deemed transfer. Appointment For example, if a settlor transfers property in trust for the life of his wife, These rules have potential If any assets to which the special rule of Regulations with a power in the wife to appropriate consequences for the valuation of ! or consume the principal of the trust, the CAUTION section 20.2010-2(a)(7)(ii) property in an estate. If the decedent (or wife has a power of appointment. any member of his or her family) was applies are reported on this schedule, involved in any such transactions, see do not enter any value in the last three Some powers do not in themselves sections 2701 through 2704 and the columns. See the instructions for line 10 constitute a power of appointment. For related regulations for additional details. of Part 5—Recapitulation for information example, a power to amend only on how to estimate and report the value administrative provisions of a trust that How To Complete Schedule G of these assets. cannot substantially affect the beneficial All transfers (other than outright Complete Schedule H and file it with enjoyment of the trust property or transfers not in trust and bona fide the return if you answered “Yes” to income is not a power of appointment. A sales) made by the decedent at any question 14 of Part 4—General power to manage, invest, or control time during life must be reported on Information. assets, or to allocate receipts and Schedule G, regardless of whether you disbursements, when exercised only in believe the transfers are subject to tax. On Schedule H, include the following a fiduciary capacity, is not a power of If the decedent made any transfers not in the gross estate. appointment. described in these instructions, the • The value of property for which the General power of appointment. A transfers should not be shown on decedent possessed a general power of general power of appointment is a Schedule G. Instead, attach a statement appointment (defined later) on the date power that is exercisable in favor of the describing these transfers by listing: of his or her death. decedent, the decedent's estate, the The date of the transfer, • The value of property for which the • decedent's creditors, or the creditors of The amount or value of the decedent possessed a general power of • the decedent's estate, except the transferred property, and appointment that he or she exercised or following. • The type of transfer. released before death by disposing of it in such a way that if it were a transfer of 1. A power to consume, invade, or Complete the schedule for each property owned by the decedent, the appropriate property for the benefit of transfer that is included in the gross property would be includible in the the decedent that is limited by an estate under sections 2035(a), 2036, decedent's gross estate as a transfer ascertainable standard relating to 2037, and 2038 as described in the with a retained life estate, a transfer health, education, support, or instructions for Schedule G. taking effect at death, or a revocable maintenance of the decedent. In the “Item number” column, number transfer. 2. A power exercisable by the each transfer consecutively beginning With the above exceptions, property decedent only in conjunction with: with “1.” In the “Description” column, list subject to a power of appointment is not a. The creator of the power; or the name of the transferee and the date includible in the gross estate if the of the transfer, and give a complete decedent released the power b. A person who has a substantial description of the property. Transfers completely and the decedent held no interest in the property subject to the included in the gross estate should be interest in or control over the property. power, which is adverse to the exercise valued on the date of the decedent's of the power in favor of the decedent. If the failure to exercise a general death or, if alternate valuation is power of appointment results in a lapse A part of a power is considered a elected, according to section 2032. of the power, the lapse is treated as a general power of appointment if the If only part of the property transferred release only to the extent that the value power: meets the terms of section 2035(a), of the property that could have been 1. May only be exercised by the 2036, 2037, or 2038, then only a appointed by the exercise of the lapsed decedent in conjunction with another corresponding part of the value of the power is more than the greater of person, and

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2. Is also exercisable in favor of the General purchase price of the annuity or other person (in addition to being These rules apply to all types of agreement bears to the total purchase exercisable in favor of the decedent, the annuities, including pension plans, price. decedent's creditors, the decedent's individual retirement arrangements estate, or the creditors of the decedent's (IRAs), purchased commercial For example, if the value of the estate). annuities, and private annuities. survivor's annuity was $20,000 and the When there is a partial power, figure decedent had contributed 75% of the In general, you must include in the purchase price of the contract, the the amount included in the gross estate gross estate all or part of the value of by dividing the value of the property by amount includible is $15,000 (75% any annuity that meets the following (0.75) × $20,000). the number of persons (including the requirements. decedent) in favor of whom the power is • It is receivable by a beneficiary exercisable. Except as provided under Annuities following the death of the decedent and Under Approved Plans, later, Date power was created. Generally, a by reason of surviving the decedent. contributions made by the decedent's power of appointment created by will is • The annuity is under a contract or employer to the purchase price of the considered created on the date of the agreement entered into after March 3, contract or agreement are considered testator's death. 1931. made by the decedent if they were A power of appointment created by • The annuity was payable to the made by the employer because of the an inter vivos instrument is considered decedent (or the decedent possessed decedent's employment. For more created on the date the instrument takes the right to receive the annuity) either information, see section 2039(b). effect. If the holder of a power exercises alone or in conjunction with another, for the decedent's life or for any period not it by creating a second power, the Definitions second power is considered as created ascertainable without reference to the at the time of the exercise of the first. decedent's death or for any period that Annuity. An annuity consists of one or did not in fact end before the decedent's more payments extending over any Attachments death. period of time. The payments may be If the decedent ever possessed a power • The contract or agreement is not a equal or unequal, conditional or of appointment, attach a certified or policy of insurance on the life of the unconditional, periodic or sporadic. verified copy of the instrument granting decedent. Examples. The following are the power and a certified or verified examples of contracts (but not copy of any instrument by which the Note. A private annuity is an annuity necessarily the only forms of contracts) power was exercised or released. You issued by a party not engaged in the for annuities that must be included in the must file these copies even if you business of writing annuity contracts, gross estate. contend that the power was not a typically a junior generation family general power of appointment, and that member or a family trust. 1. A contract under which the the property is not otherwise includible An annuity contract that provides decedent immediately before death was in the gross estate. periodic payments to a person for life receiving or was entitled to receive, for and ceases at the person's death is not the duration of life, an annuity with includible in the gross estate. Social payments to continue after death to a Schedule I—Annuities security benefits are not includible in the designated beneficiary, if surviving the decedent. If any assets to which the gross estate even if the surviving ! special rule of Regulations spouse receives benefits. 2. A contract under which the CAUTION decedent immediately before death was section 20.2010-2(a)(7)(ii) An annuity or other payment that is receiving or was entitled to receive, applies are reported on this schedule, not includible in the decedent's or the together with another person, an annuity do not enter any value in the last three survivor's gross estate as an annuity payable to the decedent and the other columns. See the instructions for line 10 may still be includible under some other person for their joint lives, with of Part 5—Recapitulation for information applicable provision of the law. For payments to continue to the survivor on how to estimate and report the value example, see Powers of Appointment following the death of either. of these assets. and the instructions for Complete Schedule l and file it with Schedule G—Transfers During 3. A contract or agreement entered the return if you answered “Yes” to Decedent's Life, earlier. See also into by the decedent and employer question 16 of Part 4—General Regulations section 20.2039-1(e). under which the decedent immediately Information. before death and following retirement If the decedent retired before was receiving, or was entitled to January 1, 1985, see Annuities Under receive, an annuity payable to the Enter on Schedule I every annuity Approved Plans, later, for rules that that meets all of the conditions under decedent for life. After the decedent's allow the exclusion of part or all of death, if survived by a designated General, later, and every annuity certain annuities. described in paragraphs (a) through (h) beneficiary, the annuity was payable to of Annuities Under Approved Plans, the beneficiary with payments either later, even if the annuities are wholly or Part Includible fixed by contract or subject to an option partially excluded from the gross estate. If the decedent contributed only part of or election exercised or exercisable by the purchase price of the contract or the decedent. However, see Annuities For a discussion regarding the QTIP agreement, include in the gross estate Under Approved Plans, later. treatment of certain joint and survivor only that part of the value of the annuity 4. A contract or agreement entered annuities, see the Schedule M, line 3, receivable by the surviving beneficiary into by the decedent and the decedent's instructions. that the decedent's contribution to the employer under which at the decedent's

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death, before retirement, or before the on or before December 31, 1982) and gross estate on this schedule that expiration of a stated period of time, an the decedent irrevocably elected the proportion of the value of the annuity annuity was payable to a designated form of the benefit before January 1, which the amount of the decedent's beneficiary, if surviving the decedent. 1983. contribution under the plan bears to the However, see Annuities Under • The decedent separated from service total amount of all contributions under Approved Plans, later. before January 1, 1983, and did not the plan. The remaining value of the 5. A contract or agreement under change the form of benefit before death. annuity is excludable from the gross which the decedent immediately before estate subject to the $100,000 limitation death was receiving, or was entitled to Approved Plans (if applicable). For the rules to determine whether the decedent made receive, an annuity for a stated period of Approved plans may be separated into time, with the annuity to continue to a contributions to the plan, see two categories. Regulations section 20.2039-1(c). designated beneficiary, surviving the • Pension, profit-sharing, stock bonus, decedent, upon the decedent's death and other similar plans. IRAs and retirement bonds. The and before the expiration of that period • IRAs and retirement bonds. following plans are approved plans for of time. the exclusion rules. 6. An annuity contract or other Different exclusion rules apply to the f. An individual retirement account arrangement providing for a series of two categories of plans. described in section 408(a). substantially equal periodic payments to Pension, etc., plans. The following g. An individual retirement annuity be made to a beneficiary for life or over plans are approved plans for the described in section 408(b). a period of at least 36 months after the exclusion rules. date of the decedent's death under an h. A retirement bond described in individual retirement account, annuity, a. An employees' trust (or a contract section 409(a) (before its repeal by P.L. or bond as described in section 2039(e) purchased by an employees' trust) 98-369). (before its repeal by P.L. 98-369). forming part of a pension, stock bonus, or profit-sharing plan that met all the Exclusion rules for IRAs and retirement bonds. These plans are Payable to the decedent. An annuity requirements of section 401(a), either at approved plans only if they provide for a or other payment was payable to the the time of the decedent's separation series of substantially equal periodic decedent if, at the time of death, the from employment (whether by death or payments made to a beneficiary for life, decedent was in fact receiving an otherwise) or at the time of the or over a period of at least 36 months annuity or other payment, with or termination of the plan (if earlier). after the date of the decedent's death. without an enforceable right to have the b. A retirement annuity contract payments continued. purchased by the employer (but not by Subject to the $100,000 limitation (if applicable), if an annuity under a “plan” Right to receive an annuity. The an employees' trust) under a plan that, at the time of the decedent's separation described in (f) through (h) above is decedent had the right to receive an receivable by a beneficiary other than annuity or other payment if, immediately from employment (by death or otherwise), or at the time of the the executor, the entire value of the before death, the decedent had an annuity is excludable from the gross enforceable right to receive payments at termination of the plan (if earlier), was a plan described in section 403(a). estate even if the decedent made a some time in the future, whether or not contribution under the plan. at the time of death the decedent had a c. A retirement annuity contract present right to receive payments. purchased for an employee by an However, if any payment to or for an employer that is an organization account or annuity described in Annuities Under Approved referred to in section 170(b)(1)(A)(ii) or paragraph (f), (g), or (h) earlier was not Plans (vi), or that is a religious organization allowable as an income tax deduction under section 219 (and was not a The following rules relate to whether (other than a trust), and that is exempt rollover contribution as described in part or all of an otherwise includible from tax under section 501(a). section 2039(e) before its repeal by P.L. annuity may be excluded. These rules d. Chapter 73 of title 10 of the United 98-369), include in the gross estate on have been repealed and apply only if States Code. this schedule that proportion of the the decedent either: e. A bond purchase plan described in value of the annuity which the amount On December 31, 1984, was both a • section 405 (before its repeal by P.L. not allowable as a deduction under participant in the plan and in pay status 98-369, effective for obligations issued section 219 and not a rollover (for example, had received at least one after December 31, 1983). contribution bears to the total amount benefit payment on or before December paid to or for such account or annuity. 31, 1984) and had irrevocably elected Exclusion rules for pension, etc., For more information, see Regulations the form of the benefit before July 18, plans. If an annuity under an approved section 20.2039-5. 1984; or plan described in (a) through (e) above • Had separated from service before is receivable by a beneficiary other than Rules applicable to all approved January 1, 1985, and did not change the the executor and the decedent made no plans. The following rules apply to all form of benefit before death. contributions under the plan toward the approved plans described in cost, no part of the value of the annuity, paragraphs (a) through (h), earlier. The amount excluded cannot exceed subject to the $100,000 limitation (if If any part of an annuity under a $100,000 unless either of the following applicable), is includible in the gross “plan” described in (a) through (h), conditions is met. estate. earlier, is receivable by the executor, it • On December 31, 1982, the If the decedent made a contribution is generally includible in the gross decedent was both a participant in the under a plan described in (a) through (e) estate to the extent that it is receivable plan and in pay status (for example, had above toward the cost, include in the by the executor in that capacity. In received at least one benefit payment

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general, the annuity is receivable by the any, attributable to the IF . . . THEN . . . executor if it is to be paid to the executor employee-decedent's contributions is or if there is an agreement (expressed always includible. Also, you may not the annuity is payable include the date of or implied) that it will be applied by the figure the gross estate in accordance for the life of a person birth of that person. beneficiary for the benefit of the estate with this election unless you check other than the (such as in discharge of the estate's “Yes” on line A and attach the names, decedent liability for death taxes or debts of the addresses, and identifying numbers of decedent, etc.) or that its distribution will the recipients of the lump-sum the annuity is wholly or enter the amount be governed to any extent by the terms distributions. See Regulations section partially excluded from excluded under of the decedent's will or the laws of 20.2039-4(d)(2). the gross estate “Description” and descent and distribution. explain how you How To Complete Schedule I figured the exclusion. If data available to you does not indicate whether the plan satisfies the In describing an annuity, give the name requirements of section 401(a), 403(a), and address of the grantor of the 408(a), 408(b), or 409(a), you may annuity. Specify if the annuity is under obtain that information from the IRS an approved plan. Schedule J—Funeral office where the employer's principal IF . . . THEN . . . Expenses and Expenses place of business is located. the annuity is under an state the ratio of the Incurred in Administering Line A. Lump-Sum Distribution approved plan decedent's contribution to the Property Subject to Claims Election total purchase price of Use Schedule PC to make a Note. The following rules have been the annuity. ! protective claim for refund for repealed and apply only if the decedent: CAUTION expenses which are not • On December 31, 1984, was both a the decedent was state the ratio of the currently deductible under section 2053. employed at the time decedent's For such a claim, report the expense on participant in the plan and in pay status of death and an contribution to the (for example, had received at least one Schedule J but without a value in the annuity as described total purchase price of last column. benefit payment on or before December earlier in Definitions, the annuity. 31, 1984) and had irrevocably elected Annuity, Example 4 the form of the benefit before July 18, became payable to General. Complete and file Schedule J 1984; or any beneficiary if you claim a deduction on item 14 of • Had separated from service before because the Part 5—Recapitulation. January 1, 1985, and did not change the beneficiary survived On Schedule J, itemize funeral form of benefit before death. the decedent expenses and expenses incurred in Generally, the entire amount of any administering property subject to an annuity under an state the ratio of the lump-sum distribution is included in the claims. List the names and addresses of individual retirement amount paid for the persons to whom the expenses are decedent's gross estate. However, account or annuity individual retirement under this special rule, all or part of a payable and describe the nature of the became payable to account or annuity expense. Do not list expenses lump-sum distribution from a qualified any beneficiary that was not allowable (approved) plan will be excluded if the because that as an income tax incurred in administering property lump-sum distribution is included in the beneficiary survived deduction under not subject to claims on this recipient's income for income tax the decedent and is section 219 (other schedule. List them on Schedule L purposes. payable to the than a rollover instead. beneficiary for life or contribution) to the If the decedent was born before The deduction is limited to the for at least 36 months total amount paid for amount paid for these expenses that is 1936, the recipient may be eligible to following the the account or annuity. elect special “10-year averaging” rules decedent's death allowable under local law but may not (under repealed section 402(e)) and exceed: capital gain treatment (under repealed the annuity is payable the description should 1. The value of property subject to section 402(a)(2)) in figuring the income out of a trust or other be sufficiently claims included in the gross estate, plus tax on the distribution. For more fund complete to fully 2. The amount paid out of property information, see Pub. 575, Pension and identify it. included in the gross estate but not Annuity Income. If this option is subject to claims. This amount must available, the estate tax exclusion the annuity is payable include the duration of actually be paid by the due date of the cannot be claimed unless the recipient for a term of years the term and the date estate tax return. elects to forego the “10-year averaging” on which it began. and capital gain treatment in figuring the The applicable local law under which income tax on the distribution. The the estate is being administered recipient elects to forego this treatment determines which property is and is not by treating the distribution as taxable on subject to claims. If under local law a his or her income tax return as particular property interest included in described in Regulations section the gross estate would bear the burden 20.2039-4(d). The election is for the payment of the expenses, then irrevocable. the property is considered property subject to claims. The amount excluded from the gross estate is the portion attributable to the Unlike certain claims against the employer contributions. The portion, if estate for debts of the decedent (see

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the instructions for Schedule K), you income on your individual income tax cannot deduct expenses incurred in return. Schedule K—Debts of the administering property subject to claims Attorney fees. Enter the amount of Decedent and Mortgages on both the estate tax return and the attorney fees that have actually been estate's income tax return. If you choose and Liens paid or that you reasonably expect to be to deduct them on the estate tax return, paid. If, on the final examination of the Use Schedule PC to make a you cannot deduct them on a Form return, the fees claimed have not been ! protective claim for refund for 1041, U.S. Income Tax Return for CAUTION awarded by the proper court and paid, expenses which are not Estates and Trusts, filed for the estate. the deduction will be allowed, provided currently deductible under section 2053. Funeral expenses are only deductible the Chief, Estate and Gift/Excise Tax For such a claim, report the expense on on the estate tax return. Examination, is reasonably satisfied that Schedule K but without a value in the Funeral expenses. Itemize funeral the amount claimed will be paid and that last column. expenses on line A. Deduct from the it does not exceed a reasonable You must complete and attach expenses any amounts that were payment for the services performed, Schedule K if you claimed deductions reimbursed, such as death benefits taking into account the size and on either item 15 or item 16 of Part payable by the SSA or the Veterans character of the estate and the local law 5—Recapitulation. Administration. and practice. If the fees claimed have not been paid at the time of final Income vs. estate tax deduction. Executors' commissions. When you examination of the return, the amount Taxes, interest, and business expenses file the return, you may deduct deducted must be supported by an accrued at the date of the decedent's commissions that have actually been affidavit, or statement signed under death are deductible both on paid to you or that you expect will be penalties of perjury, by the executor or Schedule K and as deductions in paid. Do not deduct commissions if the attorney stating that the amount has respect of the decedent on the income none will be collected. If the amount of been agreed upon and will be paid. tax return of the estate. the commissions has not been fixed by If you choose to deduct medical decree of the proper court, the Do not deduct attorney fees incidental to litigation incurred by the expenses of the decedent only on the deduction will be allowed on the final estate tax return, they are fully examination of the return, provided that: beneficiaries. These expenses are charged against the beneficiaries deductible as claims against the estate. • The Chief, Estate and Gift/Excise Tax If, however, they are claimed on the Examination, is reasonably satisfied that personally and are not administration expenses authorized by the Code. decedent's final income tax return under the commissions claimed will be paid; section 213(c), they may also not be • The amount entered as a deduction is Interest expense. Interest expenses claimed on the estate tax return. In this within the amount allowable by the laws incurred after the decedent's death are case, you may also not deduct on the of the jurisdiction where the estate is generally allowed as a deduction if they estate tax return any amounts that were being administered; and are reasonable, necessary to the not deductible on the income tax return • It is in accordance with the usually administration of the estate, and because of the percentage limitations. accepted practice in that jurisdiction for allowable under local law. estates of similar size and character. Debts of the Decedent Interest incurred as the result of a If you have not been paid the federal estate tax deficiency is a List under Debts of the Decedent only commissions claimed at the time of the deductible administrative expense. valid debts the decedent owed at the final examination of the return, you must Penalties on estate tax deficiencies are time of death. List any indebtedness support the amount you deducted with not deductible even if they are allowable secured by a mortgage or other lien on an affidavit or statement signed under under local law. property of the gross estate under the penalties of perjury that the amount Mortgages and Liens. If the amount of has been agreed upon and will be paid. Note. If you elect to pay the tax in the debt is disputed or the subject of You may not deduct a bequest or installments under section 6166, you litigation, deduct only the amount the devise made to you instead of may not deduct the interest payable on estate concedes to be a valid claim. commissions. If, however, the decedent the installments. Generally, if the claim against the fixed by will the compensation payable Miscellaneous expenses. estate is based on a promise or to you for services to be rendered in the Miscellaneous administration expenses agreement, the deduction is limited to administration of the estate, you may necessarily incurred in preserving and the extent that the liability was deduct this amount to the extent it is not distributing the estate are deductible. contracted bona fide and for an more than the compensation allowable These expenses include appraiser's adequate and full consideration in by the local law or practice. and accountant's fees, certain court money or money's worth. However, any Do not deduct on this schedule costs, and costs of storing or enforceable claim based on a promise amounts paid as trustees' commissions maintaining assets of the estate. or agreement of the decedent to make a whether received by you acting in the contribution or gift (such as a pledge or The expenses of selling assets are a subscription) to or for the use of a capacity of a trustee or by a separate deductible only if the sale is necessary trustee. If such amounts were paid in charitable, public, religious, etc., to pay the decedent's debts, the organization is deductible to the extent administering property not subject to expenses of administration, or taxes, or claims, deduct them on Schedule L. that the deduction would be allowed as to preserve the estate or carry out a bequest under the statute that applies. distribution. Note. Executors' commissions are Certain claims of a former spouse taxable income to the executors. against the estate based on the Therefore, be sure to include them as relinquishment of marital rights are deductible on Schedule K. For these

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claims to be deductible, all of the credit under section 2014, the deduction following conditions must be met. is subject to the limitations described in Schedule L—Net Losses • The decedent and the decedent's section 2053(d) and its regulations. If During Administration and spouse must have entered into a written you have difficulty figuring the agreement relative to their marital and deduction, you may request a Expenses Incurred in property rights. computation of it. Send your request Administering Property • The decedent and the spouse must within a reasonable amount of time Not Subject to Claims have been divorced before the before the due date of the return to: decedent's death and the divorce must Use Schedule PC to make a have occurred within the 3-year period Department of the Treasury ! protective claim for refund for beginning on the date 1 year before the Commissioner of Internal Revenue CAUTION expenses which are not agreement was entered into. It is not Washington, DC 20224 currently deductible under section 2053. required that the agreement be For such a claim, report the expense on approved by the divorce decree. Schedule L but without a value in the • The property or interest transferred Attach to your request a copy of the will last column. under the agreement must be and relevant documents, a statement Complete Schedule L and file it with transferred to the decedent's spouse in showing the distribution of the estate the return if you claim deductions on settlement of the spouse's marital rights. under the decedent's will, and a either item 19 or item 20 of Part computation of the state or foreign 5—Recapitulation. You may not deduct a claim made death tax showing any amount payable against the estate by a remainderman by a charitable organization. Net Losses During relating to section 2044 property. Administration Section 2044 property is described in Mortgages and Liens You may deduct only those losses from the instructions for line 7 in Part Under Mortgages and Liens, list only thefts, fires, storms, shipwrecks, or 4—General Information. obligations secured by mortgages or other casualties that occurred during the other liens on property included in the Include in this schedule notes settlement of the estate. Deduct only the gross estate at its full value or at a value unsecured by mortgage or other lien amount not reimbursed by insurance or that was undiminished by the amount of and give full details, including: otherwise. Name of payee, the mortgage or lien. If the debt is • Describe in detail the loss sustained Face and unpaid balance, enforceable against other property of • and the cause. If you received Date and term of note, the estate not subject to the mortgage • insurance or other compensation for the Interest rate, and or lien, or if the decedent was personally • loss, state the amount collected. Identify Date to which interest was paid liable for the debt, include the full value • the property for which you are claiming before death. of the property subject to the mortgage or lien in the gross estate under the the loss by indicating the schedule and Include the exact nature of the claim appropriate schedule and deduct the item number where the property is as well as the name of the creditor. If the mortgage or lien on the property on this included in the gross estate. claim is for services performed over a schedule. If you elect alternate valuation, do not period of time, state the period covered deduct the amount by which you by the claim. However, if the decedent's estate is reduced the value of an item to include it not liable, include in the gross estate Example. Edison Electric in the gross estate. only the value of the equity of Illuminating Co., for electric service redemption (or the value of the property Do not deduct losses claimed as a during December 2020, $150. less the amount of the debt), and do not deduction on a federal income tax return If the amount of the claim is the deduct any portion of the indebtedness or depreciation in the value of securities unpaid balance due on a contract for the on this schedule. or other property. purchase of any property included in the Notes and other obligations secured Expenses Incurred in gross estate, indicate the schedule and Administering Property Not item number where you reported the by the deposit of collateral, such as property. If the claim represents a joint stocks, bonds, etc., should also be Subject to Claims and separate liability, give full facts and listed under Mortgages and Liens. You may deduct expenses incurred in explain the financial responsibility of the Description administering property that is included co-obligor. in the gross estate but that is not subject Include under the “Description” column to claims. Only deduct these expenses Property and income taxes. The the particular schedule and item number if they were paid before the section deduction for property taxes is limited to where the property subject to the 6501 period of limitations for the taxes accrued before the date of the mortgage or lien is reported in the gross assessment expired. decedent's death. Federal taxes on estate. income received during the decedent's The expenses deductible on this lifetime are deductible, but taxes on Include the name and address of the schedule are usually expenses incurred income received after death are not mortgagee, payee, or obligee, and the in the administration of a trust deductible. date and term of the mortgage, note, or established by the decedent before other agreement by which the debt was death. They may also be incurred in the Keep all vouchers or original records established. Also include the face collection of other assets or the transfer for inspection by the IRS. amount, the unpaid balance, the rate of or clearance of title to other property Allowable death taxes. If you elect to interest, and the date to which the included in the decedent's gross estate take a deduction for foreign death taxes interest was paid before the decedent's for estate tax purposes, but not included under section 2053(d) rather than a death. in the decedent's probate estate.

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The expenses deductible on this Note. The marital deduction is 1. The value of any property that schedule are limited to those that are generally not allowed if the surviving does not pass from the decedent to the the result of settling the decedent's spouse is not a U.S. citizen. The marital surviving spouse. interest in the property or of vesting deduction is allowed for property 2. Property interests that are not good title to the property in the passing to such a surviving spouse in a included in the decedent's gross estate. beneficiaries. Expenses incurred on QDOT or if such property is transferred behalf of the transferees (except those or irrevocably assigned to such a trust 3. The full value of a property described earlier) are not deductible. before the estate tax return is filed. The interest for which a deduction was Examples of deductible and executor must elect QDOT status on the claimed on Schedules J through L. The nondeductible expenses are provided in return. See the instructions that follow value of the property interest should be Regulations section 20.2053-8(d). for details on the election. reduced by the deductions claimed with respect to it. List the names and addresses of the Property Interests That You 4. The full value of a property persons to whom each expense was May List on Schedule M interest that passes to the surviving payable and the nature of the expense. Generally, you may list on Schedule M spouse subject to a mortgage or other Identify the property for which the all property interests that pass from the encumbrance or an obligation of the expense was incurred by indicating the decedent to the surviving spouse and surviving spouse. Include on schedule and item number where the are included in the gross estate. Schedule M only the net value of the property is included in the gross estate. However, do not list any nondeductible interest after reducing it by the amount If you do not know the exact amount of terminable interests (described later) on of the mortgage or other debt. the expense, you may deduct an Schedule M unless you are making a 5. Nondeductible terminable estimate, provided that the amount may QTIP election. The property for which interests (described later). be verified with reasonable certainty you make this election must be included and will be paid before the period of 6. Any property interest disclaimed on Schedule M. See Qualified by the surviving spouse. limitations for assessment (referred to terminable interest property, later. earlier) expires. Keep all vouchers and Terminable Interests receipts for inspection by the IRS. For the rules on common disaster Certain interests in property passing and survival for a limited period, see from a decedent to a surviving spouse section 2056(b)(3). Schedule M—Bequests, are referred to as terminable interests. etc., to Surviving Spouse You may list on Schedule M only These are interests that will terminate or (Marital Deduction) those interests that the surviving spouse fail after the passage of time, or on the takes: occurrence or nonoccurrence of a If any assets to which the designated event. Examples are life 1. As the decedent's legatee, special rule of Regulations estates, annuities, estates for terms of ! devisee, heir, or donee; CAUTION section 20.2010-2(a)(7)(ii) years, and patents. applies are reported on this schedule, 2. As the decedent's surviving do not enter any value in the last three tenant by the entirety or joint tenant; The ownership of a bond, note, or columns. See the instructions for line 23 3. As an appointee under the other contractual obligation, which when of Part 5—Recapitulation for information decedent's exercise of a power or as a discharged would not have the effect of on how to estimate and report the value taker in default at the decedent's an annuity for life or for a term, is not of these assets. nonexercise of a power; considered a terminable interest. 4. As a beneficiary of insurance on Nondeductible terminable interests. General the decedent's life; Unless you are making a QTIP election, do not enter a terminable interest on You must complete Schedule M and file 5. As the surviving spouse taking Schedule M if: it with the return if you claim a deduction under dower or curtesy (or similar on item 21 of Part 5—Recapitulation. statutory interest); and 1. Another interest in the same property passed from the decedent to The marital deduction is authorized 6. As a transferee of a transfer some other person for less than by section 2056 for certain property made by the decedent at any time. adequate and full consideration in interests that pass from the decedent to money or money's worth; and the surviving spouse. You may claim the Property Interests That You 2. By reason of its passing, the deduction only for property interests that May Not List on Schedule M are included in the decedent's gross other person or that person's heirs may Do not list the following on Schedule M. estate (Schedules A through I). enjoy part of the property after the Example—Listing Property Interests on Schedule M

Item Description of property interests passing to surviving spouse. Amount number For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN. All other property: B1 One-half the value of a house and lot, 256 South West Street, held by decedent and surviving spouse as joint tenants with right of survivorship under deed dated July 15, 1975 (Schedule E, Part 1, item 1) ...... $182,500 B2 Proceeds of Metropolitan Life Insurance Company Policy No. 104729, payable in one sum to surviving spouse (Schedule D, item 3) ...... 200,000 B3 Cash bequest under Paragraph Six of will ...... 100,000

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termination of the surviving spouse's any of a group of assets, the value of proceeds under a life insurance, interest. the property interest is, for the entry on endowment, or annuity contract is Schedule M, reduced by the value of treated as passing from the decedent to This rule applies even though the any asset or assets that, if passing from the surviving spouse, and will not be interest that passes from the decedent the decedent to the surviving spouse, treated as a nondeductible terminable to a person other than the surviving would be nondeductible terminable interest if the following five conditions spouse is not included in the gross interests. Examples of property interests apply. estate, and regardless of when the that may be paid or otherwise satisfied interest passes. The rule also applies 1. The surviving spouse is entitled out of any of a group of assets are a to receive the proceeds in installments, regardless of whether the surviving bequest of the residue of the decedent's spouse's interest and the other person's or is entitled to interest on them, with all estate, or of a share of the residue, and amounts payable during the life of the interest pass from the decedent at the a cash legacy payable out of the general same time. spouse, payable only to the surviving estate. spouse. Property interests that are Example. A decedent bequeathed considered to pass to a person other 2. The installment or interest $100,000 to the surviving spouse. The than the surviving spouse are any payments are payable annually, or more general estate includes a term for years property interest that (a) passes under a frequently, beginning not later than 13 (valued at $10,000 in determining the decedent's will or intestacy; (b) was months after the decedent's death. value of the gross estate) in an office transferred by a decedent during life; or 3. The surviving spouse has the building, which interest was retained by (c) is held by or passed on to any power, exercisable in favor of the the decedent under a deed of the person as a decedent's joint tenant, as surviving spouse or of the estate of the building by gift to a son. Accordingly, appointee under a decedent's exercise surviving spouse, to appoint all amounts the value of the specific bequest of a power, as taker in default at a payable under the contract. entered on Schedule M is $90,000. decedent's release or nonexercise of a 4. The power of appointment is power, or as a beneficiary of insurance Life estate with power of appoint- exercisable by the surviving spouse on the decedent's life. See Regulations ment in the surviving spouse. A alone and (whether exercisable by will section 20.2056(c)-3. property interest, whether or not in trust, or during life) is exercisable by the For example, a decedent devised will be treated as passing to the surviving spouse in all events. surviving spouse, and will not be treated real property to his wife for life, with 5. No part of the amount payable remainder to his children. The life as a nondeductible terminable interest if the following five conditions apply. under the contract is subject to a power interest that passed to the wife does not in any other person to appoint any part qualify for the marital deduction 1. The surviving spouse is entitled to any person other than the surviving because it will terminate at her death for life to all of the income from the spouse. and the children will thereafter possess entire interest. or enjoy the property. 2. The income is payable annually If these five conditions are satisfied However, if the decedent purchased or at more frequent intervals. only for a specific portion of the proceeds, see Regulations section a joint and survivor annuity for himself 3. The surviving spouse has the and his wife who survived him, the value 20.2056(b)-6(b) to determine the power, exercisable in favor of the amount of the marital deduction. of the survivor's annuity, to the extent surviving spouse or the estate of the that it is included in the gross estate, surviving spouse, to appoint the entire Charitable remainder trusts. An qualifies for the marital deduction interest. interest in a charitable remainder trust because even though the interest will will not be treated as a nondeductible 4. The power is exercisable by the terminate on the wife's death, no one terminable interest if: surviving spouse alone and (whether else will possess or enjoy any part of the 1. The interest in the trust passes property. exercisable by will or during life) is exercisable by the surviving spouse in from the decedent to the surviving The marital deduction is not allowed all events. spouse, and for an interest that the decedent 5. No part of the entire interest is 2. The surviving spouse is the only directed the executor or a trustee to beneficiary of the trust other than convert, after death, into a terminable subject to a power in any other person to appoint any part to any person other charitable organizations described in interest for the surviving spouse. The section 170(c). marital deduction is not allowed for such than the surviving spouse (or the an interest even if there was no interest surviving spouse's legal representative A charitable remainder trust is either in the property passing to another or relative if the surviving spouse is a charitable remainder annuity trust or a person and even if the terminable disabled; see Regulations section charitable remainder unitrust. See interest would otherwise have been 20.2056(b)-5(a) and Rev. Rul. 85-35, section 664 for descriptions of these deductible under the exceptions 1985-1 C.B. 328). trusts. described later for life estates, life If these five conditions are satisfied Election To Deduct Qualified insurance, and annuity payments with only for a specific portion of the entire powers of appointment. For more interest, see Regulations sections Terminable Interest Property information, see Regulations section 20.2056(b)-5(b) and -5(c) to determine (QTIP) 20.2056(b)-1(f); and Regulations the amount of the marital deduction. You may elect to claim a marital section 20.2056(b)-1(g), Example (7). Life insurance, endowment, or annu- deduction for qualified terminable If any property interest passing from ity payments, with power of appoint- interest property or property interests. the decedent to the surviving spouse ment in surviving spouse. A property You make the QTIP election simply by may be paid or otherwise satisfied out of interest consisting of the entire listing the qualified terminable interest

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property on Part A of Schedule M and increase or decline in the whole of the withhold from the distribution the tax inserting its value. You are presumed to property when applying section 2044 or imposed on the QDOT, have made the QTIP election if you list 2519. Thus, if the interest of the 3. That meets the requirements of the property and insert its value on surviving spouse in a trust (or other any applicable regulations, and Schedule M. If you make this election, property in which the spouse has a the surviving spouse's gross estate will qualified life estate) is qualified 4. For which the executor has made include the value of the qualified terminable interest property, you may an election on the estate tax return of terminable interest property. See the make an election for a part of the trust the decedent. instructions for Part 4—General (or other property) only if the election Note. For trusts created by an Information, line 7, for more details. The relates to a defined fraction or instrument executed before November election is irrevocable. percentage of the entire trust (or other 5, 1990, items 1 and 2 above will be property). The fraction or percentage treated as met if the trust instrument If you file a Form 706 in which you do may be defined by means of a formula. not make this election, you may not file requires that all trustees be individuals an amended return to make the election Election to deduct qualified termin- who are citizens of the United States or unless you file the amended return on or able interest property under section domestic corporations. before the due date for filing the original 2056(b)(7). If a trust (or other property) You make the QDOT election simply Form 706. meets the requirements of qualified by listing the qualified domestic trust or terminable interest property under the entire value of the trust property on The effect of the election is that the section 2056(b)(7), and Schedule M and deducting its value. property (interest) will be treated as 1. The trust or other property is You are presumed to have made the passing to the surviving spouse and will listed on Schedule M, and QDOT election if you list the trust or not be treated as a nondeductible 2. The value of the trust (or other trust property and insert its value on terminable interest. All of the other property) is entered in whole or in part Schedule M. Once made, the election marital deduction requirements must as a deduction on Schedule M, is irrevocable. still be satisfied before you may make If an election is made to deduct this election. For example, you may not then unless the executor specifically qualified domestic trust property under make this election for property or identifies the trust (all or a fractional section 2056A(d), provide the following property interests that are not included portion or percentage) or other property information for each qualified domestic in the decedent's gross estate. to be excluded from the election, the trust on an attachment to this schedule. Qualified terminable interest proper- executor shall be deemed to have made an election to have such trust (or other 1. The name and address of every ty. Qualified terminable interest trustee. property is property (a) that passes from property) treated as qualified terminable 2. A description of each transfer the decedent, (b) in which the surviving interest property under section 2056(b) passing from the decedent that is the spouse has a qualifying income interest (7). source of the property to be placed in for life, and (c) for which election under If less than the entire value of the trust. section 2056(b)(7) has been made. trust (or other property) that the 3. The EIN for the trust. The surviving spouse has a executor has included in the gross estate is entered as a deduction on qualifying income interest for life if the The election must be made for an Schedule M, the executor shall be surviving spouse is entitled to all of the entire QDOT trust. In listing a trust for considered to have made an election income from the property payable which you are making a QDOT election, only as to a fraction of the trust (or other annually or at more frequent intervals, or unless you specifically identify the property). The numerator of this fraction has a usufruct interest for life in the trust as not subject to the election, is equal to the amount of the trust (or property, and during the surviving the election will be considered made other property) deducted on spouse's lifetime no person has a power for the entire trust. Schedule M. The denominator is equal to appoint any part of the property to The determination of whether a trust any person other than the surviving to the total value of the trust (or other property). qualifies as a QDOT will be made as of spouse. An annuity is treated as an the date the decedent's Form 706 is income interest regardless of whether Qualified Domestic Trust filed. If, however, judicial proceedings the property from which the annuity is (QDOT) Election are brought before the Form 706's due payable can be separately identified. The marital deduction is allowed for date (including extensions) to have the Regulations sections 20.2044-1 and transfers to a surviving spouse who is trust revised to meet the QDOT 20.2056(b)-7(d)(3) state that an interest not a U.S. citizen only if the property requirements, then the determination in property is eligible for QTIP treatment passes to the surviving spouse in a will not be made until the court-ordered if the income interest is contingent upon QDOT or if such property is transferred changes to the trust are made. the executor's election even if that or irrevocably assigned to a QDOT portion of the property for which no Election to deduct qualified domes- before the decedent's estate tax return tic trust property under section election is made will pass to or for the is filed. benefit of beneficiaries other than the 2056A. If a trust meets the requirement surviving spouse. A QDOT is any trust: of a QDOT under section 2056A(a), the 1. That requires at least one trustee return is filed no later than 1 year after The QTIP election may be made for the time prescribed by law (including all or any part of qualified terminable to be either a citizen of the United States or a domestic corporation, extensions), and the entire value of the interest property. A partial election must trust or trust property is listed and relate to a fractional or percentile share 2. That requires that no distribution entered as a deduction on Schedule M, of the property so that the elective part of corpus from the trust can be made then unless the executor specifically will reflect its proportionate share of the unless such a trustee has the right to

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identifies the trust to be excluded from Enter the value of each interest the election, the executor shall be before taking into account the federal Schedule O—Charitable, deemed to have made an election to estate tax or any other death tax. The Public, and Similar Gifts have the entire trust treated as qualified valuation dates used in determining the domestic trust property. value of the gross estate also apply on and Bequests Schedule M. If any assets to which the Note. For trusts with assets in excess special rule of Regulations If Schedule M includes a bequest of ! of $2 million, see Regulations section CAUTION section 20.2010-2(a)(7)(ii) the residue or a part of the residue of 20.2056A-2(d) for additional applies are reported on this schedule, the decedent's estate, attach a copy of requirements to ensure collection of the do not enter any value in the last three the computation showing how the value section 2056A estate tax. columns. See the instructions for line 23 of the residue was determined. Include of Part 5—Recapitulation for information Line 1 a statement showing the following. on how to estimate and report the value The value of all property that is If property passes to the surviving • of these assets. spouse as the result of a qualified included in the decedent's gross estate disclaimer, check “Yes” and attach a (Schedules A through I) but is not a part General copy of the written disclaimer required of the decedent's probate estate, such by section 2518(b). as lifetime transfers, jointly owned You must complete Schedule O and file property that passed to the survivor on it with the return if you claim a deduction Line 3 the decedent's death, and the insurance on item 22 of Part 5—Recapitulation. Section 2056(b)(7)(C)(ii) creates an payable to specific beneficiaries. You can claim the charitable automatic QTIP election for certain joint • The values of all specific and general deduction allowed under section 2055 and survivor annuities that are includible legacies or devises, with reference to for the value of property in the in the estate under section 2039. To the applicable clause or paragraph of decedent's gross estate that was qualify, only the surviving spouse can the decedent's will or codicil. (If legacies transferred by the decedent during life have the right to receive payments are made to each member of a class, for or by will to or for the use of any of the before the death of the surviving example, $1,000 to each of the following. spouse. decedent's employees, only the number • The United States, a state, a political in each class and the total value of The executor can elect out of QTIP subdivision of a state, or the District of property received by them need be Columbia, for exclusively public treatment, however, by checking the furnished.) “Yes” box on line 3. Once made, the purposes. • The dates of birth of all persons, the • Any corporation or association election is irrevocable. If there is more length of whose lives may affect the than one such joint and survivor annuity, organized and operated exclusively for value of the residuary interest passing to religious, charitable, scientific, literary, you are not required to make the the surviving spouse. election for all of them. or educational purposes, including the • Any other important information such encouragement of art, or to foster as that relating to any claim to any part If you make the election out of QTIP national or international amateur sports of the estate not arising under the will. treatment by checking “Yes” on line 3, competition (but only if none of its you cannot deduct the amount of the Lines 5a, 5b, and 5c. The total of the activities involve providing athletic annuity on Schedule M. If you do not values listed on Schedule M must be facilities or equipment, unless the elect out, you must list the joint and reduced by the amount of the federal organization is a qualified amateur survivor annuities on Schedule M. estate tax, the federal GST tax, and the sports organization) and the prevention amount of state or other death and GST of cruelty to children and animals. No Listing Property Interests on taxes paid out of the property interest part of the net earnings may benefit any Schedule M involved. If you enter an amount for private individual and no substantial List each property interest included in state or other death or GST taxes on activity may be undertaken to carry on the gross estate that passes from the line 5b or 5c, identify the taxes and propaganda, or otherwise attempt to decedent to the surviving spouse and attach your computation of them. influence legislation or participate in any for which a marital deduction is claimed. political campaign on behalf of any Attachments. If you list property candidate for public office. This includes otherwise nondeductible interests passing by the decedent's will terminable interest property for which • A trustee or a fraternal society, order, on Schedule M, attach a certified copy or association operating under the lodge you are making a QTIP election. of the order admitting the will to probate. Number each item in sequence and system, if the transferred property is to If, when you file the return, the court of be used exclusively for religious, describe each item in detail. Describe probate jurisdiction has entered any the instrument (including any clause or charitable, scientific, literary, or decree interpreting the will or any of its educational purposes, or for the paragraph number) or provision of law provisions affecting any of the interests under which each item passed to the prevention of cruelty to children or listed on Schedule M, or has entered animals. No substantial activity may be surviving spouse. Indicate the schedule any order of distribution, attach a copy and item number of each asset. undertaken to carry on propaganda or of the decree or order. In addition, the otherwise attempt to influence In listing otherwise nondeductible IRS may request other evidence to legislation, or participate in any political property for which you are making a support the marital deduction claimed. campaign on behalf of any candidate for QTIP election, unless you specifically public office. identify a fractional portion of the trust or • Any veterans organization other property as not subject to the incorporated by an Act of Congress or election, the election will be considered any of its departments, local chapters, made for the entire interest.

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or posts, for which none of the net If you are deducting the value of the transfer was made by any other written earnings benefits any private individual. residue or a part of the residue passing instrument, attach a copy. If the • Employee stock ownership plans, if to charity under the decedent's will, instrument is of record, the copy should the transfer qualifies as a qualified attach a copy of the computation be certified; if not, the copy should be gratuitous transfer of qualified employer showing how you determined the value, verified. securities within the meaning provided including any reduction for the taxes in section 664(g). described earlier. Value The valuation dates used in determining For this purpose, certain Indian tribal Also include the following. the value of the gross estate also apply governments are treated as states and • A statement that shows the values of on Schedule O. transfers to them qualify as deductible all specific and general legacies or charitable contributions. See section devises for both charitable and 7871 and Rev. Proc. 2008-55, 2008-39 noncharitable uses. For each legacy or Schedule P—Credit for I.R.B. 768, available at IRS.gov/pub/irs- devise, indicate the paragraph or Foreign Death Taxes irbs/irb08-39.pdf, as modified and section of the decedent's will or codicil supplemented by subsequent revenue that applies. If legacies are made to General procedures, for a list of qualifying Indian each member of a class (for example, If you claim a credit on line 13 of Part tribal governments. $1,000 to each of the decedent's 2—Tax Computation, complete You may also claim a charitable employees), show only the number of Schedule P and file it with the return. contribution deduction for a qualifying each class and the total value of Attach Form(s) 706-CE to Form 706 to conservation easement granted after property they received. support any credit you claim. • The dates of birth of all life tenants or the decedent's death under the If the foreign government refuses to provisions of section 2031(c)(9). annuitants, the length of whose lives may affect the value of the interest certify Form 706-CE, file it directly with The charitable deduction is allowed passing to charity under the decedent's the IRS as instructed on the Form for amounts that are transferred to will. 706-CE. See Form 706-CE for charitable organizations as a result of • A statement showing the value of all instructions on how to complete the either a qualified disclaimer (see Line 2. property that is included in the form and a description of the items that Qualified Disclaimer, later) or the decedent's gross estate but does not must be attached to the form when the complete termination of a power to pass under the will, such as transfers, foreign government refuses to certify it. consume, invade, or appropriate jointly owned property that passed to The credit for foreign death taxes is property for the benefit of an individual. the survivor on the decedent's death, allowable only if the decedent was a It does not matter whether termination and insurance payable to specific citizen or resident of the United States. occurs because of the death of the beneficiaries. However, see section 2053(d) and the individual or in any other way. The • Any agreements with charitable related regulations for exceptions and termination must occur within the period beneficiaries, whether entered before or limitations if the executor has elected, in of time (including extensions) for filing after the date of death of the decedent. certain cases, to deduct these taxes the decedent's estate tax return and • Verification of the sale or purchase of from the value of the gross estate. For a before the power has been exercised. property that is the subject of a resident not a citizen, who was a citizen The deduction is limited to the charitable deduction. or subject of a foreign country for which amount actually available for charitable • Any other important information such the President has issued a proclamation uses. Therefore, if under the terms of a as that relating to any claim, not arising under section 2014(h), the credit is will or the provisions of local law, or for under the will, to any part of the estate allowable only if the country of which the any other reason, the federal estate tax, (that is, a spouse claiming dower or decedent was a national allows a similar the federal GST tax, or any other estate, curtesy, or similar rights). credit to decedents who were U.S. GST, succession, legacy, or inheritance Line 2. Qualified Disclaimer citizens residing in that country. tax is payable in whole or in part out of The charitable deduction is allowed for The credit is authorized either by any bequest, legacy, or devise that amounts that are transferred to statute or by treaty. If a credit is would otherwise be allowed as a charitable organizations as a result of a authorized by a treaty, whichever of the charitable deduction, the amount you qualified disclaimer. To be a qualified following is the most beneficial to the may deduct is the amount of the disclaimer, a refusal to accept an estate is allowed. bequest, legacy, or devise reduced by interest in property must meet the • The credit figured under the treaty. the total amount of the taxes. conditions of section 2518. These are • The credit figured under the statute. If you elected to make installment explained in Regulations sections • The credit figured under the treaty, payments of the estate tax, and the 25.2518-1 through 25.2518-3. If plus the credit figured under the statute interest is payable out of property property passes to a charitable for death taxes paid to each political transferred to charity, you must reduce beneficiary as the result of a qualified subdivision or possession of the treaty the charitable deduction by an estimate disclaimer, check the “Yes” box on country that are not directly or indirectly of the maximum amount of interest that line 2 and attach a copy of the written creditable under the treaty. will be paid on the deferred tax. disclaimer required by section 2518(b). Under the statute, the credit is For split-interest trusts or pooled Attachments authorized for all death taxes (national income funds, only the figure that is If the charitable transfer was made by and local) imposed in the foreign passing to the charity should be entered will, attach a certified copy of the order country. Whether local taxes are the in the “Amount” column. Do not enter admitting the will to probate, in addition basis for a credit under a treaty depends the entire amount that passes to the to the copy of the will. If the charitable upon the provisions of the particular trust or fund. treaty.

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If a credit for death taxes paid in • Subjected to these taxes, and statute for death taxes paid to each more than one foreign country is • Included in the gross estate. political subdivision or possession of the allowable, a separate computation of The amount entered on item 1 should treaty country that are not directly or the credit must be made for each not include any tax paid to the foreign indirectly creditable under the treaty). foreign country. The copies of country for property not situated in that • If specifically provided, the credit is Schedule P on which the additional country and should not include any tax proportionately shared for the tax computations are made should be paid to the foreign country for property applicable to property situated outside attached to the copy of Schedule P not included in the gross estate. If only a both countries, or that was deemed in provided in the return. part of the property subjected to foreign some instances situated within both taxes is both situated in the foreign countries. The total credit allowable for any • The amount entered on item 4 of property, whether subjected to tax by country and included in the gross estate, it will be necessary to determine Schedule P is the amount shown on one or more than one foreign country, is line 12 of Part 2—Tax Computation, less limited to the amount of the federal the portion of the taxes attributable to that part of the property. Also, attach the the total of the credits claimed for estate tax attributable to the property. federal gift taxes on pre-1977 gifts The anticipated amount of the credit computation of the amount entered on item 1. (section 2012) and for tax on prior may be figured on the return, but the transfers (line 14 of Part 2—Tax credit cannot finally be allowed until the Item 2. Enter the value of the gross Computation). (If a credit is claimed for foreign tax has been paid and a Form estate, less the total of the deductions tax on prior transfers, it will be 706-CE evidencing payment is filed. on items 21 and 22 of Part necessary to complete Schedule Q Section 2014(g) provides that for credits 5—Recapitulation. before completing Schedule P.) For for foreign death taxes, each U.S. Item 3. Enter the value of the property examples of computations of credits possession is deemed a foreign under the treaties, see the applicable country. situated in the foreign country that is subjected to the foreign taxes and regulations. Convert death taxes paid to the included in the gross estate, less those Computation of credit in cases foreign country into U.S. dollars by portions of the deductions taken on where property is situated outside using the rate of exchange in effect at Schedules M and O that are attributable both countries or deemed situated the time each payment of foreign tax is to the property. within both countries. See the made. Item 4. Subtract any credit claimed on appropriate treaty for details. If a credit is claimed for any foreign line 15 for federal gift taxes on pre-1977 death tax that is later recovered, see gifts (section 2012) from line 12 of Part Schedule Q—Credit for Regulations section 20.2016-1 for the 2—Tax Computation, and enter the notice required within 30 days. balance on item 4 of Schedule P. Tax on Prior Transfers Limitation Period Credit Under Treaties General The credit for foreign death taxes is If you are reporting any items on this Complete Schedule Q and file it with the limited to those taxes that were actually return based on the provisions of a return if you claim a credit on line 14 of paid and for which a credit was claimed death tax treaty, you may have to attach Part 2—Tax Computation. within the later of 4 years after the filing a statement to this return disclosing the The term “transferee” means the of the estate tax return, before the date return position that is treaty based. See decedent for whose estate this return is of expiration of any extension of time for Regulations section 301.6114-1 for filed. If the transferee received property payment of the federal estate tax, or 60 details. from a transferor who died within 10 days after a final decision of the Tax In general. If the provisions of a treaty years before, or 2 years after, the Court on a timely filed petition for a apply to the estate of a U.S. citizen or transferee, a credit is allowable on this redetermination of a deficiency. resident, a credit is authorized for return for all or part of the federal estate Credit Under the Statute payment of the foreign death tax or tax paid by the transferor's estate for the taxes specified in the treaty. Treaties For the credit allowed by the statute, the transfer. There is no requirement that with death tax conventions are in effect question of whether particular property the property be identified in the estate of with the following countries: Australia, is situated in the foreign country the transferee or that it exist on the date Austria, Canada, Denmark, Finland, imposing the tax is determined by the of the transferee's death. It is sufficient France, Germany, Greece, Ireland, Italy, same principles that would apply in for the allowance of the credit that the Japan, the Netherlands, South Africa, determining whether similar property of transfer of the property was subjected to Switzerland, and the United Kingdom. a nonresident not a U.S. citizen is federal estate tax in the estate of the situated within the United States for A credit claimed under a treaty is in transferor and that the specified period purposes of the federal estate tax. See general figured on Schedule P in the of time has not elapsed. A credit may be the Instructions for Form 706-NA. same manner as the credit is figured allowed for property received as the under the statute with the following result of the exercise or nonexercise of Computation of Credit Under principal exceptions. a power of appointment when the the Statute • The situs rules contained in the treaty property is included in the gross estate apply in determining whether property of the donee of the power. Item 1. Enter the amount of the estate, was situated in the foreign country. inheritance, legacy, and succession If the transferee was the transferor's • The credit may be allowed only for taxes paid to the foreign country and its surviving spouse, no credit is allowed payment of the death tax or taxes possessions or political subdivisions, for property received from the transferor specified in the treaty (but see the attributable to property that is: to the extent that a marital deduction instructions earlier for credit under the • Situated in that country, was allowed to the transferor's estate for

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the property. There is no credit for tax If credit for a particular foreign death tax section 2032A(c) was imposed at any on prior transfers for federal gift taxes may be taken under either the statute or time up to 2 years after the death of the paid in connection with the transfer of a death duty convention, and on this decedent for whom you are filing this the property to the transferee. return the credit actually is taken under return, check the box on Schedule Q. the convention, then no credit for that On lines 1 and 9 of the worksheet, If you are claiming a credit for tax on foreign death tax may be taken into include the property subject to the prior transfers on Form 706-NA, you consideration in figuring estate tax (2a) additional estate tax at its FMV rather should first complete and attach Part or estate tax (2b) above. than its special-use value. On line 10 of 5—Recapitulation from Form 706 before the worksheet, include the additional figuring the credit on Schedule Q from Percent Allowable estate tax paid as a federal estate tax Form 706. Where transferee predeceased the paid. Section 2056(d)(3) contains specific transferor. If not more than 2 years How To Complete the rules for allowing a credit for certain elapsed between the dates of death, the transfers to a spouse who was not a credit allowed is 100% of the maximum Schedule Q Worksheet U.S. citizen where the property passed amount. If more than 2 years elapsed Most of the information to complete Part outright to the spouse, or to a qualified between the dates of death, no credit is I of the worksheet should be obtained domestic trust. allowed. from the transferor's Form 706. Property Where transferor predeceased the Line 5. Enter on line 5 the applicable transferee. The percent of the marital deduction claimed for the The term “property” includes any maximum amount that is allowed as a transferor's estate (from the transferor's interest (legal or equitable) of which the credit depends on the number of years Form 706). transferee received the beneficial that elapsed between dates of death. It ownership. The transferee is considered Lines 10 through 18. Enter on these is determined using the following table. the beneficial owner of property over lines the appropriate taxes paid by the transferor's estate. which the transferee received a general Period of power of appointment. Property does Time Not Percent If the transferor's estate elected to not include interests to which the Exceeding Exceeding Allowable pay the federal estate tax in transferee received only a bare legal . . . - - - - - 2 years 100 installments, enter on line 10 only the title, such as that of a trustee. Neither 2 years 4 years 80 total of the installments that have does it include an interest in property 4 years 6 years 60 actually been paid at the time you file over which the transferee received a 6 years 8 years 40 this Form 706. See Rev. Rul. 83-15, power of appointment that is not a 8 years 10 years 20 1983-1 C.B. 224, for more details. general power of appointment. In 10 years - - - - - none addition to interests in which the Line 21. Add lines 11 (allowable transferee received the complete applicable credit) and 13 (foreign death taxes credit) of Part 2—Tax ownership, the credit may be allowed How To Figure the Credit for annuities, life estates, terms for Computation to the amount of any credit years, remainder interests (whether A worksheet for Schedule Q is provided taken (on line 15) for federal gift taxes contingent or vested), and any other to allow you to figure the limits before on pre-1977 gifts (section 2012). interest that is less than the complete completing Schedule Q. Transfer the Subtract this total from Part 2—Tax ownership of the property, to the extent appropriate amounts from the Computation, line 8. Enter the result on that the transferee became the worksheet to Schedule Q as indicated line 21 of the worksheet. beneficial owner of the interest. on the schedule. You do not need to file the worksheet with Form 706, but keep Line 26. If you figured the marital Maximum Amount of the Credit it for your records. deduction using the unlimited marital deduction in effect for decedents dying The maximum amount of the credit is Cases involving transfers from two after 1981, for purposes of determining the smaller of: or more transferors. Part I of the the marital deduction for the reduced 1. The amount of the estate tax of worksheet and Schedule Q enable you gross estate, see Rev. Rul. 90-2, the transferor's estate attributable to the to figure the credit for as many as three 1990-1 C.B. 169. To determine the transferred property, or transferors. The number of transferors is “reduced adjusted gross estate,” 2. The amount by which: irrelevant to Part II of the worksheet. If subtract the amount on line 25 of the you are figuring the credit for more than Worksheet for Schedule Q from the a. An estate tax on the transferee's three transferors, use more than one amount on line 24 of the worksheet. If estate determined without the credit for worksheet and Schedule Q, Part I, and community property is included in the tax on prior transfers exceeds combine the totals for the appropriate amount on line 24 of the worksheet, b. An estate tax on the transferee's lines. figure the reduced adjusted gross estate estate determined by excluding from the Section 2032A additional tax. If the using the rules of Regulations section gross estate the net value of the 20.2056(c)-2 and Rev. Rul. 76-311, transfer. transferor's estate elected special-use valuation and the additional estate tax of 1976-2 C.B. 261.

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Worksheet for Schedule Q—Credit for Tax on Prior Transfers Part I Transferor’s tax on prior transfers Total for all transfers Transferor (From Schedule Q) Item (line 8 only) A B C 1. Gross value of prior transfer to this transferee 2. Death taxes payable from prior transfer 3. Encumbrances allocable to prior transfer 4. Obligations allocable to prior transfer 5. Marital deduction applicable to line 1 above, as shown on transferor’s Form 706 6. TOTAL. Add lines 2, 3, 4, and 5 7. Net value of transfers. Subtract line 6 from line 1 8. Net value of transfers. Add columns A, B, and C of line 7 9. Transferor’s tentative taxable estate (see line 3a, page 1, Form 706) 10. Federal estate tax paid 11. State death taxes paid 12. Foreign death taxes paid 13. Other death taxes paid 14. TOTAL taxes paid. Add lines 10, 11, 12, and 13 15. Value of transferor’s estate. Subtract line 14 from line 9 16. Net federal estate tax paid on transferor’s estate 17. Credit for gift tax paid on transferor’s estate with respect to pre-1977 gifts (section 2012) 18. Credit allowed transferor’s estate for tax on prior transfers from prior transferor(s) who died within 10 years before death of decedent 19. Tax on transferor’s estate. Add lines 16, 17, and 18 20. Transferor’s tax on prior transfers ((line 7 ÷ line 15) × line 19 of respective estates) Part II Transferee’s tax on prior transfers Item Amount 21. Transferee’s actual tax before allowance of credit for prior transfers (see instructions) 21 22. Total gross estate of transferee from line 1 of the Tax Computation, page 1, Form 706 22 23. Net value of all transfers from line 8 of this worksheet 23 24. Transferee’s reduced gross estate. Subtract line 23 from line 22 24 25. Total debts and deductions (not including marital and charitable deductions) (line 3b of Part 2—Tax Computation, page 1 and items 18, 19, and 20 of the Recapitulation, page 3, Form 706) 25 26. Marital deduction from item 21, Recapitulation, page 3, Form 706 (see instructions) 26 27. Charitable bequests from item 22, Recapitulation, page 3, Form 706 27 28. Charitable deduction proportion ( [ line 23 ÷ (line 22 – line 25) ] × line 27 ) 28 29. Reduced charitable deduction. Subtract line 28 from line 27 29 30. Transferee’s deduction as adjusted. Add lines 25, 26, and 29 30 31. (a) Transferee’s reduced taxable estate. Subtract line 30 from line 24 31(a) (b) Adjusted taxable gifts 31(b) (c) Total reduced taxable estate. Add lines 31(a) and 31(b) 31(c) 32. Tentative tax on reduced taxable estate 32 33. (a) Post-1976 gift taxes paid 33(a) (b) Uni ed credit (applicable credit amount) 33(b) (c) Section 2012 gift tax credit 33(c) (d) Section 2014 foreign death tax credit 33(d) (e) Total credits. Add lines 33(a) through 33(d) 33(e) 34. Net tax on reduced taxable estate. Subtract line 33(e) from line 32 34 35. Transferee’s tax on prior transfers. Subtract line 34 from line 21 35

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transfer is a direct skip that should be only on direct skips. For purposes of Schedules R and reported on Schedule R or R-1 of Form Form 706, a direct skip is a transfer that R-1—Generation-Skipping 706. is: • Subject to the estate tax, Transfer Tax In general. The GST tax is effective • Of an interest in property, and for the estates of decedents dying after • To a skip person. Introduction and Overview October 22, 1986. Schedule R is used to figure the All three requirements must be met generation-skipping transfer (GST) tax Irrevocable trusts. The GST tax before the transfer is subject to the GST that is payable by the estate. will not apply to any transfer under a tax. A transfer is subject to the estate Schedule R-1 is used to figure the GST trust that was irrevocable on September tax if you are required to list it on any of tax that is payable by certain trusts that 25, 1985, but only to the extent that the Schedules A through I of Form 706. To are includible in the gross estate. transfer was not made out of corpus determine if a transfer is of an interest in added to the trust after September 25, property and to a skip person, you must The GST tax reported on Form 706 is 1985. An addition to the corpus after first determine if the transferee is a imposed on only direct skips occurring that date will cause a proportionate part natural person or a trust, as defined at death. Unlike the estate tax, which is of future income and appreciation to be later. imposed on the value of the entire subject to the GST tax. For more taxable estate regardless of who information, see Regulations section Trust. For purposes of the GST tax, a receives it, the GST tax is imposed on 26.2601-1(b)(1). trust includes not only an ordinary trust only the value of interests in property, (as defined in Special rule for trusts wherever located, that actually pass to Mental disability. If, on October 22, other than ordinary trusts, later), but certain transferees, who are referred to 1986, the decedent was under a mental also any other arrangement (other than as skip persons (defined later). disability to change the disposition of his an estate) which, although not explicitly or her property and did not regain the a trust, has substantially the same effect For purposes of Form 706, the competence to dispose of property as a trust. For example, a trust includes property interests transferred must be before death, the GST tax will not apply life estates with remainders, terms for includible in the gross estate before they to any property included in the gross years, and insurance and annuity are subject to the GST tax. Therefore, estate (other than property transferred contracts. the first step in figuring the GST tax on behalf of the decedent during life and liability is to determine the property Substantially separate and after October 21, 1986). The GST tax independent shares of different interests includible in the gross estate will also not apply to any transfer under by completing Schedules A through I of beneficiaries in a trust are treated as a trust to the extent that the trust separate trusts. Form 706. consists of property included in the Interest in property. If a transfer is The second step is to determine who gross estate (other than property made to a natural person, it is always the skip persons are. To do this, assign transferred on behalf of the decedent considered a transfer of an interest in each transferee to a generation and during life and after October 21, 1986). property for purposes of the GST tax. determine whether each transferee is a Under a mental disability means the natural person or a trust for GST decedent lacked the competence to If a transfer is made to a trust, a purposes. See section 2613 and execute an instrument governing the person will have an interest in the Regulations section 26.2612-1(d) for disposition of his or her property, property transferred to the trust if that details. regardless of whether there was an person either has a present right to adjudication of incompetence or an receive income or corpus from the trust The third step is to determine which appointment of any other person (such as an income interest for life) or is skip persons are transferees of interests charged with the care of the person or a permissible current recipient of in property. If the skip person is a property of the transferor. income or corpus from the trust (that is, natural person, anything transferred is may receive income or corpus at the If the decedent had been adjudged an interest in property. If the skip person discretion of the trustee). is a trust, make this determination using mentally incompetent, a copy of the the rules under Interest in property, judgment or decree must be filed with Skip person. A transferee who is a later. These first three steps are this return. natural person is a skip person if that described in detail under Determining If the decedent had not been transferee is assigned to a generation Which Transfers Are Direct Skips, later. adjudged mentally incompetent, the that is two or more generations below executor must file with the return a the generation assignment of the The fourth step is to determine certification from a qualified physician decedent. See Determining the whether to enter the transfer on stating that in his or her opinion the generation of a transferee, later. Schedule R or on Schedule R-1. See decedent had been mentally A transferee who is a trust is a skip the rules under Dividing Direct Skips incompetent at all times on and after person if all the interests in the property Between Schedules R and R-1, later. October 22, 1986, and that the (as defined above) transferred to the The fifth step is to complete decedent had not regained the trust are held by skip persons. Thus, Schedules R and R-1 using the How To competence to modify or revoke the whenever a non-skip person has an Complete instructions for each terms of the trust or will prior to his or interest in a trust, the trust will not be a schedule. her death or a statement as to why no skip person even though a skip person such certification may be obtained from also has an interest in the trust. Determining Which Transfers a physician. Are Direct Skips A trust will also be a skip person if Direct skip. The GST tax reported on there are no interests in the property Effective dates. The rules below apply Form 706 and Schedule R-1 is imposed transferred to the trust held by any only for the purpose of determining if a person, and future distributions or

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terminations from the trust can be made and 511(b)(2)) is a transferee, then Windsor decision, and are non-skip only to skip persons. each person who indirectly receives the persons, is deemed void. For additional property interests through the entity is information, go to IRS.gov/Businesses/ Non-skip person. A non-skip person is treated as a transferee and is assigned Small-Businesses-Self-Employed/ any transferee who is not a skip person. to a generation as explained in the Estate-and-Gift-Taxes. Determining the generation of a above rules. However, this look-through transferee. Generally, a generation is rule does not apply for the purpose of Ninety-day rule. For purposes of determined along family lines as determining whether a transfer to a trust determining if an individual's parent is follows. is a direct skip. deceased at the time of a testamentary transfer, an individual's parent who dies 1. Where the beneficiary is a lineal Generation assignment where no later than 90 days after a transfer descendant of a grandparent of the intervening parent is deceased. A occurring by reason of the death of the decedent (that is, the decedent's special rule may apply in the case of the transferor is treated as having cousin, niece, nephew, etc.), the death of a parent of the transferee. For predeceased the transferor. The 90-day number of generations between the terminations, distributions, and transfers rule applies to transfers occurring on or decedent and the beneficiary is after December 31, 1997, the existing after July 18, 2005. See Regulations determined by subtracting the number rule that applied to grandchildren of the section 26.2651-1 for more information. of generations between the grandparent decedent has been extended to apply to and the decedent from the number of other lineal descendants. Charitable organizations. generations between the grandparent Charitable organizations and trusts and the beneficiary. If property is transferred to an described in sections 511(a)(2) and individual who is a descendant of a 2. Where the beneficiary is a lineal 511(b)(2) are assigned to the parent of the transferor, and that decedent's generation. Transfers to descendant of a grandparent of a individual's parent (who is a lineal spouse (or former spouse) of the such organizations are therefore not descendant of the parent of the subject to the GST tax. decedent, the number of generations transferor) is deceased at the time the between the decedent and the transfer is subject to gift or estate tax, Charitable remainder trusts. beneficiary is determined by subtracting then for purposes of generation Transfers to or in the form of charitable the number of generations between the assignment, the individual is treated as remainder annuity trusts, charitable grandparent and the spouse (or former if he or she is a member of the remainder unitrusts, and pooled income spouse) from the number of generations generation that is one generation below funds are not considered made to skip between the grandparent and the the lower of: persons and, therefore, are not direct beneficiary. • The transferor's generation; or skips even if all of the life beneficiaries 3. A person who at any time was • The generation assignment of the are skip persons. married to a person described in (1) or youngest living ancestor of the Estate tax value. Estate tax value is (2) above is assigned to the generation individual, who is also a descendant of the value shown on Schedules A of that person. A person who at any time the parent of the transferor. through I of this Form 706. was married to the decedent is The same rules apply to the assigned to the decedent's generation. generation assignment of any Examples. The rules above can be 4. A relationship by adoption or descendant of the individual. illustrated by the following examples. half-blood is treated as a relationship by This rule does not apply to a transfer 1. Under the will, the decedent's whole-blood. to an individual who is not a lineal house is transferred to the decedent's 5. A person who is not assigned to a descendant of the transferor if the daughter for her life with the remainder generation according to (1), (2), (3), or transferor has any living lineal passing to her children. This transfer is (4) above is assigned to a generation descendants. made to a “trust” even though there is no explicit trust instrument. The interest based on his or her birth date, as If any transfer of property to a trust follows. in the property transferred (the present would have been a direct skip except for right to use the house) is transferred to a a. A person who was born not more this generation assignment rule, then non-skip person (the decedent's 1 than 12 /2 years after the decedent is in the rule also applies to transfers from daughter). Therefore, the trust is not a the decedent's generation. the trust attributable to such property. skip person because there is an interest b. A person born more than 121/2 See the examples in Regulations in the transferred property that is held by years, but not more than 371/2 years, section 26.2651-1(c). a non-skip person. The transfer is not a after the decedent is in the first direct skip. generation younger than the decedent. Generation assignment under Notice 2017-15. Notice 2017-15 2. The will bequeaths $100,000 to c. A similar rule applies for a new permits a taxpayer to reduce his or her the decedent's grandchild. This transfer generation every 25 years. GST exemption allocated to transfers is a direct skip that is not made in trust and should be shown on Schedule R. If more than one of the rules for that were made to or for the benefit of assigning generations applies to a transferees whose generation 3. The will establishes a trust that is transferee, that transferee is generally assignment is changed as a result of the required to accumulate income for 10 assigned to the youngest of the Windsor decision. A taxpayer’s GST years and then pay its income to the generations that would apply. exemption that was allocated to a decedent's grandchildren for the rest of transfer to (or to a trust for the sole their lives and, upon their deaths, If an estate, trust, partnership, benefit of) one or more transferees distribute the corpus to the decedent's corporation, or other entity (other than whose generation assignment should great-grandchildren. Because the trust certain charitable organizations and have been determined on the basis of a has no current beneficiaries, there are trusts described in sections 511(a)(2) familial relationship as the result of the no present interests in the property

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transferred to the trust. All of the transfers are direct skips required to be How To Complete Schedules R persons to whom the trust can make reported on Schedule R-1. and R-1 future distributions (including Special rule for trusts other than or- distributions upon the termination of Valuation. Enter on Schedules R and dinary trusts. An ordinary trust is interests in property held in trust) are R-1 the estate tax value of the property defined in Regulations section skip persons (for example, the interests subject to the direct skips. If 301.7701-4(a) as “an arrangement decedent's grandchildren and you elected alternate valuation (section created by a will or by an inter vivos great-grandchildren). Therefore, the 2032) and/or special-use valuation declaration whereby trustees take title to trust itself is a skip person and you (section 2032A), you must use the property for the purpose of protecting or should show the transfer on alternate and/or special-use values on conserving it for the beneficiaries under Schedule R. Schedules R and R-1. the ordinary rules applied in chancery or 4. The will establishes a trust that is probate courts.” Direct skips from How To Complete Schedule R to pay all of its income to the decedent's ordinary trusts are required to be Part 1. GST Exemption grandchildren for 10 years. At the end of reported on Schedule R-1 regardless of 10 years, the corpus is to be distributed their size unless the executor is also a Reconciliation to the decedent's children. All of the trustee (see Executor as trustee below). Part 1, line 6, of both Parts 2 and 3, and present interests in this trust are held by Direct skips from trusts that are trusts line 4 of Schedule R-1 are used to skip persons. Therefore, the trust is a for GST tax purposes but are not allocate the decedent's GST exemption. skip person and you should show this ordinary trusts are to be shown on This allocation is made by filing Form transfer on Schedule R. You should Schedule R-1 only if the total of all 706 and attaching a completed show the estate tax value of all the tentative maximum direct skips from the Schedule R and/or R-1. Once made, the property transferred to the trust even entity is $250,000 or more. If this total is allocation is irrevocable. You are not though the trust has some ultimate less than $250,000, the skips should be required to allocate all of the decedent's beneficiaries who are non-skip persons. shown on Schedule R. For purposes of GST exemption. However, the portion of Dividing Direct Skips Between the $250,000 limit, tentative maximum the exemption that you do not allocate will be allocated by the IRS under the Schedules R and R-1 direct skips is the amount you would enter on line 5 of Schedule R-1 if you deemed allocation of unused GST Report all generation-skipping were to file that schedule. exemption rules of section 2632(e). TIP transfers on Schedule R unless A liquidating trust (such as a the rules below specifically For transfers made through 1998, the bankruptcy trust) under Regulations GST exemption was $1 million. The provide that they are to be reported on section 301.7701-4(d) is not treated as Schedule R-1. current GST exemption is $11,700,000. an ordinary trust for the purposes of this The exemption amounts for 1999 Under section 2603(a)(2), the GST tax special rule. through 2021 are as follows. on direct skips from a trust (as defined If the proceeds of a life insurance for GST tax purposes) is to be paid by policy are includible in the gross estate Year of transfer GST exemption the trustee and not by the estate. and are payable to a beneficiary who is 1999 $1,010,000 Schedule R-1 serves as a notification a skip person, the transfer is a direct 2000 $1,030,000 from the executor to the trustee that a skip from a trust that is not an ordinary 2001 $1,060,000 GST tax is due. trust. It should be reported on 2002 $1,100,000 Schedule R-1 if the total of all the 2003 $1,120,000 For a direct skip to be reportable on tentative maximum direct skips from the Schedule R-1, the trust must be 2004 and 2005 $1,500,000 company is $250,000 or more. 2006, 2007, and 2008 $2,000,000 includible in the decedent's gross Otherwise, it should be reported on 2009 $3,500,000 estate. Schedule R. 2010 and 2011 $5,000,000 If the decedent was a surviving Similarly, if an annuity is includible on 2012 $5,120,000 spouse receiving benefits for his or her Schedule I and its survivor benefits are 2013 $5,250,000 lifetime from a marital deduction power payable to a beneficiary who is a skip 2014 $5,340,000 of appointment (or QTIP) trust created person, then the estate tax value of the 2015 $5,430,000 by the decedent's spouse, then annuity should be reported as a direct 2016 $5,450,000 transfers caused by reason of the skip on Schedule R-1 if the total 2017 $5,490,000 decedent's death from that trust to skip tentative maximum direct skips from the 2018 $11,180,000 persons are direct skips required to be entity paying the annuity are $250,000 2019 $11,400,000 reported on Schedule R-1. or more. 2020 $11,580,000 If a direct skip is made “from a trust” Executor as trustee. If any of the 2021 $11,700,000 under these rules, it is reportable on executors of the decedent's estate are Schedule R-1 even if it is also made “to trustees of the trust, then all direct skips for that trust must be shown on a trust” rather than to an individual. The amount of each increase can Schedule R and not on Schedule R-1, only be allocated to transfers made (or Similarly, if property in a trust (as even if they would otherwise have been appreciation that occurred) during or defined for GST tax purposes) is required to be shown on Schedule R-1. after the year of the increase. The included in the decedent's gross estate This rule applies even if the trust has following example shows the application under section 2035, 2036, 2037, 2038, other trustees who are not executors of of this rule. 2039, 2041, or 2042 and such property the decedent's estate. is, by reason of the decedent's death, transferred to skip persons, the

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Example. In 2003, Gretchen made a For more information, see section or distributions under section 2612 even direct skip of $1,120,000 and applied 2632 and related regulations. if the form is not required to be filed to her full $1,120,000 of GST exemption to report estate or GST tax. Line 3. Make an entry on this line if you the transfer. Gretchen made a $450,000 are filing Form(s) 709 for the decedent taxable direct skip in 2004 and another Line 9, column C. Enter the GST and wish to allocate any exemption. of $90,000 in 2006. For 2004, Gretchen exemption, included on lines 2 through can only apply $380,000 of exemption Lines 4, 5, and 6. These lines 6 of Part 1 of Schedule R (discussed ($380,000 inflation adjustment from represent your allocation of the GST above), that was allocated to the trust. 2004) to the $450,000 transfer in 2004. exemption to direct skips made by For 2006, Gretchen can apply $90,000 reason of the decedent's death. Line 9, column D. Allocate the of exemption to the 2006 transfer, but Complete Parts 2 and 3 and amount on line 8 of Part 1 of Schedule R nothing to the transfer made in 2004. At Schedule R-1 before completing these in line 9, column D. This amount may be the end of 2006, Gretchen would have lines. allocated to transfers into trusts that are $410,000 of unused exemption that she not otherwise reported on Form 706. Line 9. Line 9 is used to allocate the For example, the line 8 amount may be can apply to future transfers (or remaining unused GST exemption (from appreciation) starting in 2007. allocated to an inter vivos trust line 8) and to help you figure the trust's established by the decedent during his Special QTIP election. In the case of inclusion ratio. Line 9 is a Notice of or her lifetime and not included in the property for which a marital deduction is Allocation for allocating the GST gross estate. This allocation is made by allowed to the decedent's estate under exemption to trusts as to which the identifying the trust on line 9 and making section 2056(b)(7) (QTIP election), decedent is the transferor and from an allocation to it using column D. If the section 2652(a)(3) allows you to treat which a generation-skipping transfer trust is not included in the gross estate, such property for purposes of the GST could occur after the decedent's death. value the trust as of the date of death. tax as if the election to be treated as If line 9 is not completed, the deemed Inform the trustee of each trust listed on qualified terminable interest property allocation at death rules will apply to line 9 of the total GST exemption you had not been made. allocate the decedent's remaining allocated to the trust. The trustee will The section 2652(a)(3) election must unused GST exemption. The exemption need this information to figure the GST include the value of all property in the will first be allocated to property that is tax on future distributions and trust for which a QTIP election was the subject of a direct skip occurring at terminations. the decedent's death, and then to trusts allowed under section 2056(b)(7). Line 9, column E. Trust's as to which the decedent is the If a section 2652(a)(3) election is inclusion ratio. The trustee must know transferor. To avoid the application of made, then the decedent will, for GST the trust's inclusion ratio to figure the the deemed allocation rules, you should tax purposes, be treated as the trust's GST tax for future distributions enter on line 9 every trust (except transferor of all the property in the trust and terminations. You are not required certain trusts entered on Schedule R-1, for which a marital deduction was to inform the trustee of the inclusion as described later) to which you wish to allowed to the decedent's estate under ratio and may not have enough allocate any part of the decedent's GST section 2056(b)(7). In this case, the information to figure it. Therefore, you exemption. Unless you enter a trust on executor of the decedent's estate may are not required to make an entry in line 9, the unused GST exemption will allocate part or all of the decedent's column E. However, column E and the be allocated to it under the deemed GST exemption to the property. worksheet later are provided to assist allocation rules. You make the election simply by you in figuring the inclusion ratio for the listing qualifying property on line 9 of If a trust is entered on Schedule R-1, trustee if you wish to do so. the amount you entered on line 4 of Part 1. Inform the trustee of the amount of Schedule R-1 serves as a Notice of the GST exemption you allocated to the Line 2. These allocations will have Allocation and you need not enter the trust. Line 9, columns C and D, may be been made either on Forms 709 filed by trust on line 9 unless you wish to used to figure this amount for each trust. the decedent or on Notices of Allocation allocate more than the Schedule R-1, made by the decedent for inter vivos line 4, amount to the trust. However, you Note. This worksheet will figure an transfers that were not direct skips but must enter the trust on line 9 if you wish accurate inclusion ratio only if the to which the decedent allocated the to allocate any of the unused GST decedent was the only settlor of the GST exemption. These allocations by exemption amount to it. Such an trust. Use a separate worksheet for the decedent are irrevocable. additional allocation would not ordinarily each trust (or a separate share of a trust Also include on this line allocations be appropriate in the case of a trust that is treated as a separate trust). deemed to have been made by the entered on Schedule R-1 when the trust decedent under the rules of section property passes outright (rather than to 2632. Unless the decedent elected out another trust) at the decedent's death. of the deemed allocation rules, However, where section 2032A property allocations are deemed to have been is involved, it may be appropriate to made in the following order. allocate additional exemption amounts 1. To inter vivos direct skips. to the property. See the instructions for line 10, later. 2. Beginning with transfers made after December 31, 2000, to lifetime To avoid application of the transfers to certain trusts, by the ! deemed allocation rules, Form decedent, that constituted indirect skips CAUTION 706 and Schedule R should be that were subject to the gift tax. filed to allocate the exemption to trusts that may later have taxable terminations

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WORKSHEET (Inclusion Ratio) property interests transferred do not bear the GST tax on the transfers. Schedule U—Qualified 1. Total estate and gift tax value of Conservation Easement all of the property interests that Section 2603(b) requires that unless passed to the trust ...... the governing instrument provides Exclusion 2. Estate taxes, state death taxes, otherwise, the GST tax is to be charged If at the time of the contribution and other charges actually to the property constituting the transfer. of the conservation easement, recovered from the trust ... ! Therefore, you will usually enter all of CAUTION the value of the easement, the 3. GST taxes imposed on direct the direct skips on Part 2. skips to skip persons other than value of the land subject to the easement, or the value of any retained this trust and borne by the You may enter a transfer on Part 3 property transferred to this development right was different from the only if the will or trust instrument directs, trust ...... estate tax value, you must complete a 4. GST taxes actually recovered by specific reference, that the GST tax separate computation in addition to from this trust (from Schedule R, is not to be paid from the transferred completing Schedule U. Part 2, line 8; or Schedule R-1, property interests.

line 6) ...... Part 2, line 3. Enter zero on this line Use a copy of Schedule U as a 5. Add lines 2 through 4 ..... unless the will or trust instrument worksheet for this separate 6. Subtract line 5 from line 1 .. specifies that the GST taxes will be paid computation. Complete lines 4 through 7. Add columns C and D of by property other than that constituting 14 of the worksheet Schedule U. line 9 ...... the transfer (as described above). Enter However, the value you use on lines 4, 8. Divide line 7 by line 6 ..... on line 3 the total of the GST taxes 5, 7, and 10 of the worksheet is the 9. Trust's inclusion ratio. Subtract shown on Part 3 and Schedule(s) R-1 value for these items as of the date of line 8 from 1.000 ...... that are payable out of the property the contribution of the easement, not the interests shown on Part 2, line 1. estate tax value. If the date of Line 10. Special-use allocation. For contribution and the estate tax values skip persons who receive an interest in Part 2, line 6. Do not enter more than are the same, you do not need to do a section 2032A special-use property, you the amount on line 5. Additional separate computation. may allocate more GST exemption than allocations may be made using Part 1. the direct skip amount to reduce the After completing the worksheet, enter Part 3, line 3. See the instructions for additional GST tax that would be due the amount from line 14 of the Part 2, line 3, above. Enter only the total when the interest is later disposed of or worksheet on line 14 of Schedule U. of the GST taxes shown on Schedule(s) qualified use ceases. See Finish completing Schedule U by R-1 that are payable out of the property Schedule A-1, earlier, for more details entering amounts on lines 4, 7, and 15 interests shown on Part 3, line 1. about this additional GST tax. through 20, following the instructions later for those lines. At the top of Enter on line 10 the total additional Part 3, line 6. See the instructions for Schedule U, enter "worksheet GST exemption available to allocate to Part 2, line 6, above. attached." Attach the worksheet to the all skip persons who received any How To Complete Schedule R-1 return. interest in section 2032A property. Attach a special-use allocation Filing due date. Enter the due date of Under section 2031(c), you may elect statement listing each such skip person Form 706. You must send the copies of to exclude a portion of the value of land and the amount of the GST exemption Schedule R-1 to the fiduciary before this that is subject to a qualified allocated to that person. date. conservation easement. You make the election by filing Schedule U with all of If you do not allocate the GST Line 4. Do not enter more than the the required information and excluding exemption, it will automatically be amount on line 3. If you wish to allocate the applicable value of the land that is allocated under the deemed allocation an additional GST exemption, you must subject to the easement on Part at death rules. To the extent any amount use Schedule R, Part 1. Making an entry 5—Recapitulation, on item 12. To elect is not so allocated, it will be on line 4 constitutes a Notice of the exclusion, include on Schedule A, B, automatically allocated to the earliest Allocation of the decedent's GST E, F, G, or H, as appropriate, the disposition or cessation that is subject exemption to the trust. decedent's interest in the land that is to the GST tax. Under certain Line 6. If the property interests entered subject to the exclusion. You must make circumstances, post-death events may on line 1 will not bear the GST tax, the election on a timely filed Form 706, cause the decedent to be treated as a multiply line 6 by 40% (0.40). including extensions. transferor for purposes of chapter 13. The exclusion is the lesser of: Line 10 may be used to set aside an Signature. The executor(s) must sign The applicable percentage of the exemption amount for such an event. Schedule R-1 in the same manner as • value of land (after certain reductions) Attach a statement listing each such Form 706. See Signature and subject to a qualified conservation event and the amount of exemption Verification, earlier. easement, or allocated to that event. Filing Schedule R-1. Attach to Form • $500,000. 706 one copy of each Schedule R-1 that Parts 2 and 3 you prepare. Send two copies of each Once made, the election is Schedule R-1 to the fiduciary. irrevocable. Use Part 2 to figure the GST tax on transfers in which the property interests General Requirements transferred are to bear the GST tax on Qualified Land the transfers. Use Part 3 to report the GST tax on transfers in which the Land may qualify for the exclusion if all of the following requirements are met.

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• The decedent or a member of the prohibition on more than a de minimis Line 4 decedent's family must have owned the use for commercial recreational activity. Enter on this line the gross value at land for the 3-year period ending on the Qualified organization. A qualified which the land was reported on the date of the decedent's death. organization includes the following. applicable asset schedule on this Form No later than the date the election is • • Corporations and any community 706. Do not reduce the value by the made, a qualified conservation chest, fund, or foundation, organized amount of any mortgage outstanding. easement on the land has been made and operated exclusively for religious, Report the estate tax value even if the by the decedent, a member of the charitable, scientific, testing for public easement was granted by the decedent decedent's family, the executor of the safety, literary, or educational purposes, (or someone other than the decedent) decedent's estate, or the trustee of a or to foster national or international prior to the decedent's death. trust that holds the land. amateur sports competition, or for the The land is located in the United Note. If the value of the land reported • prevention of cruelty to children or States or one of its possessions. on line 4 was different at the time the animals, without net earnings benefitting easement was contributed from that any individual shareholder and without reported on Form 706, see the Caution Member of Family activity with the purpose of influencing at the beginning of the Schedule U legislation or political campaigning, Members of the decedent's family instructions. include the decedent's spouse; which: ancestors; lineal descendants of the a. Receives more than one-third of its Line 5 decedent, of the decedent's spouse, support from gifts, contributions, and of the parents of the decedent; and membership fees, or receipts from The amount on line 5 should be the date the spouse of any lineal descendant. A sales, admissions fees, or performance of death value of any qualifying legally adopted child of an individual is of services; or conservation easements granted prior to the decedent's death, whether considered a child of the individual by b. Is controlled by such an granted by the decedent or someone blood. organization. other than the decedent, for which the • Any entity that qualifies under section exclusion is being elected. Indirect Ownership of Land 170(b)(1)(A)(v) or (vi). Note. If the value of the easement The qualified conservation easement Conservation purpose. An easement reported on line 5 was different at the exclusion applies if the land is owned has a conservation purpose if it is for: time the easement was contributed than indirectly through a partnership, • The preservation of land areas for at the date of death, see the Caution at corporation, or trust, if the decedent outdoor recreation by, or for the the beginning of the Schedule U owned (directly or indirectly) at least education of, the public; instructions. 30% of the entity. For the rules on • The protection of a relatively natural determining ownership of an entity, see habitat of fish, wildlife, or plants, or a Ownership rules next. similar ecosystem; or Line 7 Ownership rules. An interest in • The preservation of open space You must reduce the land value by the property owned, directly or indirectly, by (including farmland and forest land) value of any development rights or for a corporation, partnership, or trust where such preservation is for the retained by the donor in the conveyance is considered proportionately owned by scenic enjoyment of the general public, of the easement. A development right is or for the entity's shareholders, partners, or under a clearly delineated federal, any right to use the land for any or beneficiaries. A person is the state, or local conservation policy and commercial purpose that is not beneficiary of a trust only if he or she will yield a significant public benefit. subordinate to or directly supportive of has a present interest in the trust. For Specific Instructions the use of the land as a farm for farming additional information, see the purposes. Line 1 ownership rules in section 2057(e)(3). Note. If the value of the retained If the land is reported as one or more development rights reported on line 7 Qualified Conservation Easement item numbers on a Form 706 schedule, was different at the time the easement A qualified conservation easement is simply list the schedule and item was contributed than at the date of one that would qualify as a qualified numbers. If the land subject to the death, see the Caution at the beginning conservation contribution under section easement is only part of an item, of the Schedule U instructions. 170(h). It must be a contribution: however, list the schedule and item • Of a qualified real property interest, number and describe the part subject to You do not have to make this • To a qualified organization, and the easement. See the instructions for reduction if everyone with an interest in • Exclusively for conservation Schedule A—Real Estate, earlier, for the land (regardless of whether in purposes. information on how to describe the land. possession) agrees to permanently extinguish the retained development Qualified real property interest. A Line 3 right. The agreement must be filed with qualified real property interest is any of this return and must include all of the the following. Using the general rules for describing following information and terms. • The entire interest of the donor, other real estate, provide enough information than a qualified mineral interest. so the IRS can value the easement. 1. A statement that the agreement is • A remainder interest. Give the date the easement was made under section 2031(c)(5). • A restriction granted in perpetuity on granted and by whom it was granted. 2. A list of all persons in being the use that may be made of the real holding an interest in the land that is property. The restriction must include a subject to the qualified conservation easement. Include each person's name,

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address, TIN, relationship to the Explain how this value was decedent, and a description of their determined and attach copies of any Schedule PC—Protective interest. appraisals. Normally, the appropriate Claim for Refund 3. The items of real property shown way to value a conservation easement A protective claim for refund preserves on the estate tax return that are subject is to determine the FMV of the land both the estate’s right to a refund of tax paid to the qualified conservation easement before and after the granting of the on any amount included in the gross (identified by schedule and item easement, with the difference being the estate which would be deductible under number). value of the easement. section 2053 but has not been paid or otherwise will not meet the requirements 4. A description of the retained Reduce the reported value of the of section 2053 until after the limitations development right that is to be easement by the amount of any period for filing the claim has passed. extinguished. consideration received for the See section 6511(a). 5. A clear statement of consent that easement. If the date of death value of is binding on all parties under applicable the easement is different from the value Only use Schedule PC for local law: at the time the consideration was section 2053 protective claims a. To take whatever action is received, reduce the value of the for refund being filed with Form necessary to permanently extinguish easement by the same proportion that 706. If the initial notice of the protective the retained development rights listed in the consideration received bears to the claim for refund is being submitted after the agreement; and value of the easement at the time it was Form 706 has been filed, use Form 843, granted. For example, assume the value Claim for Refund and Request for b. To be personally liable for of the easement at the time it was Abatement, to file the claim. additional taxes under section 2031(c) granted was $100,000 and $10,000 was (5)(C) if this agreement is not received in consideration for the implemented by the earlier of: Schedule PC may be used to file a easement. If the easement was worth section 2053 protective claim for refund • The date that is 2 years after the $150,000 at the date of death, you must by estates of decedents who died after date of the decedent's death, or reduce the value of the easement by December 31, 2011. It will also be used • The date of sale of the land subject $15,000 ($10,000/$100,000 × to inform the IRS when the contingency to the qualified conservation $150,000) and report the value of the leading to the protective claim for refund easement. easement on line 10 as $135,000. is resolved and the refund due the 6. A statement that in the event this estate is finalized. The estate must agreement is not timely implemented, Line 15 indicate whether the Schedule PC being that they will report the additional tax on If a charitable contribution deduction for filed is the initial notice of protective whatever return is required by the IRS this land has been taken on claim for refund, notice of partial claim and will file the return and pay the Schedule O, enter the amount of the for refund, or notice of the final additional tax by the last day of the 6th deduction here. If the easement was resolution of the claim for refund. month following the applicable date granted after the decedent's death, a described above. Because each separate claim or contribution deduction may be taken on expense requires a separate Schedule O, if it otherwise qualifies, as Schedule PC, more than one All parties to the agreement must long as no income tax deduction was or Schedule PC may be included with sign the agreement. will be claimed for the contribution by Form 706, if applicable. Two copies of any person or entity. For an example of an agreement each Schedule PC must be included containing some of the same terms, see with Form 706. Line 16 Part 3 of Schedule A-1. Reduce the value of the land by the Note. Filing a section 2053 protective claim for refund on Schedule PC will not Line 10 amount of any acquisition indebtedness on the land at the date of the decedent's suspend the IRS’s review and Enter the total value of the qualified death. Acquisition indebtedness examination of Form 706, nor will it conservation easements on which the includes the unpaid amount of: delay the issuance of a closing letter for exclusion is based. This could include • Any indebtedness incurred by the the estate. easements granted by the decedent (or donor in acquiring the property; Initial Notice of Claim someone other than the decedent) prior • Any indebtedness incurred before the to the decedent's death, easements acquisition if the indebtedness would The first Schedule PC to be filed is the granted by the decedent that take effect not have been incurred but for the initial notice of protective claim for at death, easements granted by the acquisition; refund. The estate will receive a written executor after the decedent's death, or • Any indebtedness incurred after the acknowledgment of receipt of the claim some combination of these. acquisition if the indebtedness would from the IRS. If the acknowledgment is not received within 180 days of filing the Use the value of the easement not have been incurred but for the acquisition and the incurrence of the protective claim for refund on ! as of the date of death, even if Schedule PC, the fiduciary should CAUTION indebtedness was reasonably the easement was granted prior contact the IRS at 866-699-4083 to to the date of death. But, if the value of foreseeable at the time of the acquisition; and inquire about the receipt and processing the easement was different at the time of the claim. A certified mail receipt or the easement was contributed than at • The extension, renewal, or refinancing of acquisition indebtedness. other evidence of delivery is not the date of death, see the Caution at the sufficient to confirm receipt and beginning of the Schedule U processing of the protective claim for instructions. refund.

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Note. The written acknowledgment of There are two means by which the testamentary, letters of administration, receipt does not constitute a estate may notify the IRS of the or similar documentation evidencing the determination that all requirements for a resolution of the uncertainty that fiduciary's authority to file the protective valid protective claim for refund have deprived the estate of the deduction claim for refund on behalf of the estate. been met. when Form 706 was filed. The estate Include a copy of Form 56, Notice may file a supplemental Form 706 with Concerning Fiduciary Relationship, if it In general, the claim will not be an updated Schedule PC and include has been filed. subject to substantive review until the each schedule affected by the amount of the claim has been allowance of the deduction under Part 2. Claim Information established. However, a claim can be section 2053. Page 1 of Form 706 disallowed at the time of filing. For should contain the notation For a protective claim for refund to be example, the claim for refund will be “Supplemental Information—Notification properly filed and considered, the claim rejected if: of Consideration of Section 2053 or expense forming the basis of the • The claim was not timely filed, Protective Claim(s) for Refund” and potential section 2053 deduction must • The claim was not filed by the include the filing date of the initial notice be clearly identified. Using the check fiduciary or other person with authority of protective claim for refund. A copy of boxes provided, indicate whether you to act on behalf of the estate, the initial notice of claim should also be are filing the initial claim for refund, a • The acknowledgment of the penalties submitted. claim for partial refund, or a final claim. of perjury statement (on page 1 of Form 706) was not signed, or Alternatively, the estate may notify On the chart in Part 2, give the Form • The claim is not adequately the IRS by filing an updated Form 843. 706 schedule and item number of the described. Form 843 must contain the notation claim or expense. List any amounts “Notification of Consideration of Section claimed under exceptions for If the IRS does not raise such a 2053 Protective Claim(s) for Refund,” ascertainable amounts (Regulations defect when the claim is filed, it will not including the filing date of the initial section 20.2053-1(d)(4)), claims and be precluded from doing so in the later notice of protective claim for refund, on counterclaims in related matters substantive review. page 1. A copy of the initial notice of (Regulations section 20.2053-4(b)), or claim must also be submitted. claims under $500,000 (Regulations section 20.2053-4(c)). Provide all The estate may be given an The estate should notify the IRS of relevant information as described, opportunity to cure any defects in the resolution within 90 days of the date the including, most importantly, an initial notice by filing a corrected and claim or expense is paid or the date on explanation of the reasons and signed protective claim for refund before which the amount of the claim becomes contingencies delaying the actual the expiration of the limitations period in certain and no longer subject to payment to be made in satisfaction of section 6511(a) or within 45 days of contingency, whichever is later. the claim or expense. Complete notice of the defect, whichever is later. Separate notifications must be columns E and F only if filing a notice of submitted for every section 2053 Related Ancillary Expenses partial or final resolution. Show the protective claim for refund that was filed. If a section 2053 protective claim for amount of ancillary or related expenses refund has been adequately identified If the final section 2053 claim or to be included in the claim for refund on Schedule PC, the IRS will presume expense involves multiple or recurring and indicate whether this amount is that the claim includes certain expenses payments, the 90-day period begins on estimated, agreed upon, or has been related to resolving, defending, or the date of the last payment. The estate paid. Also show the amount being satisfying the claim. These ancillary may also notify the IRS (not more than claimed for refund. expenses may include attorneys’ fees, annually) as payments are being made court costs, appraisal fees, and and possibly qualify for a partial refund Note. If you made partial claims for a accounting fees. The estate is not based on the amounts paid through the recurring expense, the amount required to separately identify or date of the notice. presently claimed as a deduction under substantiate these expenses; however, section 2053 will only include the each expense must meet the Specific Instructions amount presently claimed, not the requirements of section 2053 to be Part 1. General Information cumulative amount. deductible. Complete Part 1 by providing Notice of Final Resolution of information that is correct and complete Part 3. Other Schedules PC and Claim as of the time Schedule PC is filed. If Forms 843 Filed by the Estate filing an updated Schedule PC with a On the chart in Part 3, provide When an expense that was the subject supplemental Form 706 or as notice of of a section 2053 protective claim for information on other protective claims final resolution of the protective claim for for refund that have been previously refund is finally determined, the estate refund, be sure to update the must notify the IRS that the claim for filed on behalf of the estate (if any), information from the original filing to whether on other Schedules PC or on refund is ready for consideration. The ensure that it is accurate. Be particularly notification should provide facts and Form 843. When the initial claim for careful to verify that contact information refund is filed, only information from evidence substantiating the deduction (addresses and telephone numbers) under section 2053 and the resulting Form(s) 843 need be included in Part 3. and the reason for filing Schedule PC However, when filing a partial or final recomputation of the estate tax liability. are indicated correctly. If the fiduciary is A separate notice of final resolution claim for refund, complete Part 3 by different from the executor identified on including the status of all claims filed by must be filed with the IRS for each page 1 of Form 706 or has changed resolved section 2053 protective claim or on behalf of the estate, including since the initial notice of protective claim those filed on other Schedules PC with for refund. for refund was filed, attach letters

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Form 706. For each such claim, give the deductions from Schedules J, K, L, M, • Use as many Continuation Schedules place of filing, date of filing, and amount and O. as needed to list all the assets or of the claim. deductions. Please remember to do the following. • Enter the letter of the schedule you • Use a separate Continuation are continuing in the space at the top of Continuation Schedule Schedule for each main schedule you the Continuation Schedule. When you need to list more assets or are continuing. Do not combine assets • Use the Unit value column only if deductions than you have room for on or deductions from different schedules continuing Schedule B, E, or G. For all one of the main schedules, use the on one Continuation Schedule. other schedules, use this space to Continuation Schedule at the end of • Make copies of the blank schedule continue the description. Form 706. It provides a uniform format before completing it if you expect to • Carry the total from the Continuation for listing additional assets from need more than one. Schedules forward to the appropriate Schedules A through I and additional line on the main schedule.

If continuing Report Where on Continuation Schedule Schedule E, Pt. 2 Percentage includible Alternate valuation date Schedules J, L, M Continued description of deduction Alternate valuation date and Alternate value Schedule O Character of institution Alternate valuation date and Alternate value Schedule O Amount of each deduction Value at date of death or amount deductible

Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. Subtitle B and section 6109, and the regulations require you to provide this information. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential as required by section 6103. However, section 6103 allows or requires the Internal Revenue Service to disclose information from this form in certain circumstances. For example, we may disclose information to the Department of Justice for civil or criminal litigation, and to cities, states, the District of Columbia, and U.S. commonwealths or possessions for use in administering their tax laws. We may also disclose this information to other countries under a tax treaty, to federal and state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. Failure to provide this information, or providing false information, may subject you to penalties. The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The estimated average times are:

Form Recordkeeping Learning about the law Preparing the form Copying, assembling, and sending or the form the form to the IRS Form 706 & embedded 6 hr., 46 min. 7 hr., 39 min. 13 hr., 8 min. 9 hr., 10 min. schedules Form Schedule R-1 (706) 6 min. 29 min. 24 min. 20 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making Form 706 simpler, we would be happy to hear from you. You can send us comments through IRS.gov/FormComments. Or you can write to:

Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. NW, IR-6526 Washington, DC 20224

Do not send the tax form to this address. Instead, see Where To File, earlier.

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Index

General Instructions 1 Qualified heir 12 Schedule U, Qualified A Gross estate 2, 17 Qualified real property 11 Conservation Easement Address, executor 5 GST 43 Exclusion 47 Administration Expenses 32 Section 2032A 11 Alternate valuation 10 R Section 2035(a) transfers 27 Amending Form 706 3 I Recapitulation 17 Section 2036 transfers 27 Annuities 30 Inclusion ratio for trust 46 Residents of U. S. Possessions 2 Section 2037 transfers 27 Applicable Credit Adjustment 9 Installment payments 13 Reversionary or Remainder Section 2038 transfers 27 Applicable Credit Amount 9 Insurance 25 Interests 15 Section 2044 16 Rounding off to whole dollars 4 Section 6163 15 Authorized Representative 15 Section 6166 13 Signature and verification 3 J Social security number 5 B Joint Property 25 S Special Rule – Portability 19 Bonds 22 Schedule A, Real Estate 19 Special-Use Valuation 11, 20 Schedule A-1, Section 2032A Specific Instructions 5 L Valuation 20 Stocks 22 C Liens 34 Schedule B, Stocks and Bonds 22 Canadian marital credit 10 Losses 34 Schedule C, Mortgages, Notes, Lump-sum distribution election 32 and Cash 24 Charitable Deduction 38 Schedule D, Insurance on T Claim for refund 49 Decedent's Life 25 Table A, Unified Rate Schedule 5 Close Corporations 16 Schedule E, Jointly Owned Table of Estimated Values 18 Conservation Easement 47 M Property 25 Tax Computation 5 Continuation Schedule 51 Marital Deduction 35 Schedule F, Miscellaneous Terminable Interests 35 Credit for foreign death taxes 39 Material participation 12 Property 26 Total Credits 10 Credit for tax on prior transfers 40 Member of family 12 Schedule G, Transfers During Transfers, valuation rules 28 Mortgages and liens 34 Decedent's Life 27 Trusts 16 Schedule H, Powers of D appointment 29 Death certificate 3 N Schedule I, Annuities 30 U Debts of the decedent 33 Nonresident Noncitizens 2 Schedule J, Funeral Expenses and U. S. Citizens or Residents 2 Deductions 17 Expenses Incurred in Unified Credit (Applicable Credit Direct skips 43 Administering Property Subject Amount) 9 Disclaimer, qualified 39 to Claims 32 Unified credit adjustment 9 Documents, supplemental 3 P Schedule K, Debts of the DSUE 17 Part 1. Decedent and Executor 5 Part 2. Tax Computation 5 Decedent and Mortgages and Part 3. Elections by the Liens 33 V Executor 10 Schedule L, Net Losses During Valuation methods 12 E Part 4. General Information 15 Administration and Expenses Valuation rules, transfers 28 Election 13, 15 Part 5. Recapitulation 17 Incurred in Administering Election, lump-sum distribution 32 Part 6. Portability of Deceased Property Not Subject to Estimated Values 19 Spousal Unused Exclusion 17 Claims 34 Executor 2, 5 Schedule M, Bequests to Surviving W Partnership Interests 16 Spouses 35 What's New 1 Paying the Tax 3 Schedule O, Charitable, Public, When To File 2 Penalties 4 and Similar Gifts and Which Estates Must File 2 F Portability 17 Bequests 38 Worksheet, inclusion ratio for Foreign Accounts 16 Powers of appointment 29 Schedule P, Credit for Foreign trust 46 Foreign Death Taxes 39 Protective Claim for Refund 49 Death Taxes 39 Worksheet for Schedule Q 41 Forms and publications, Publications, obtaining 4 Schedule PC, Protective Claim for Worksheet TG-Taxable Gifts obtaining 4 Purpose of Form 1 Refund 49 Reconciliation 6 Funeral Expenses 32 Schedule Q, Credit for Tax on Prior Transfers 40 Q Schedules R and R-1, G QDOT 37 Generation-Skipping Transfer General Information 15 QTIP 36 Tax 43

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Checklists for Completing Form 706

To ensure a complete return, review the following checklists before filing Form 706.

Attachments . . .

Death Certificate.

Certified copy of the will—if decedent died testate, you must attach a certified copy of the will. If not certified, explain why.

Appraisals—attach any appraisals used to value property included on the return.

Copies of all trust documents where the decedent was a grantor or a beneficiary.

Form 2848 or 8821, if applicable.

Copy of any Form(s) 709 filed by the decedent, with "Exhibit to Estate Tax Return" entered across the top of the first page(s).

Copy of Line 7 Worksheet, if applicable, with “Exhibit to Estate Tax Return” entered across the top of the page(s).

Form 712, if any policies of life insurance are included on the return.

Form 706-CE, if claiming a foreign death tax credit.

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Have you . . .

Signed the return at the bottom of page 1?

Had the preparer sign, if applicable?

Obtained the signature of your authorized representative on Part 4—General Information, page 2?

Entered a Total on all schedules filed?

Made an entry on every line of the Recapitulation, even if it is a zero?

Included the CUSIP number for all stocks and bonds?

Included the EIN of trusts, partnerships, and closely held entities?

Included the first 4 pages of the return and all required schedules?

Completed Schedule F? It must be filed with all returns.

Completed Part 4—General Information, line 4, on page 2, if there is a surviving spouse?

Completed and attached Schedule D to report insurance on the life of the decedent, even if its value is not included in the estate?

Included any QTIP property received from a predeceased spouse?

Entered the decedent's name, SSN, and “Form 706” on your check or money order?

Completed Part 6, Section A, if the estate elects not to transfer any DSUE amount to the surviving spouse?

Completed Part 6, Section C, if the estate elects portability of any DSUE amount?

Completed Part 6, Section D, and included a copy of the Form 706, with “Exhibit to Estate Tax Return” entered across the top of the first page, of any predeceased spouse(s) from whom a DSUE amount was received and applied?

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